FDI inflows on a decline

The declining trend in the FDI inflows in India continued in November 2010. The FDI inflows dropped to $1.6 billion (approx Rs 7,200 crore) in November 2010 which was seven per cent low as against $1.72 billion (Rs 7,740 crore) over the same period last year.

After showing signs of recovery in September 2010, the FDI inflows in October 2010 dipped by about 40 per cent to $1.4 billion (approx Rs 6,300 crore) from $2.3 billion (approx Rs 10,350 crore) in the same period last year. The inflow in September 2010 was up by 40 per cent from the same month last year.

The main sectors which attracted FDI include services (financial or nonfinancial), telecommunication, housing and real estate, construction activities and power.

The industry experts opine that confusing government policies could be one of the reasons for dip in the FDI inflows. Multibrand retail, lottery, agriculture and atomic energy are some sectors where FDI is prohibited. Further, there is a cap on FDI in sectors such as aviation, telecom, media and defence, among others.

Policy Developments:

Government may slash FDI in pharma sector

The Union Government, in its bid to control the escalating drug prices, is mulling to cut down on the FDI limit in the pharmaceutical sector. It is likely to cap the FDI in the sector at 49 per cent and routing it through the government.

Currently, the FDI limit in the sector stands at 100 per cent through the automatic route.

The Prime Minister's Office is learnt to have moved a note to the Union Ministry of Health and other agencies, including the Union Ministry of Commerce and Industry and the Department of Pharmaceuticals to initiate steps to bring down the 100 per cent FDI in the pharma sector to 49 per cent.

The government fears that 100 per cent FDI may lead to uncontrolled mergers and acquisitions by foreign drug firms, which could lead to further increase in drug prices and also cartelisation.

FIPB Clearances:

In December 2010, the Union Ministry of Finance based on the recommendations of the FIPB approved eight FDI proposals worth Rs 883.16 crore.

The major proposal was worth Rs 641.25 crore of L&T Finance. The Rs 169 crore investment plan of Konecranes Finance Corporation has also been cleared. The company plans to invest in a company engaged in the financing, investment and consultancy activities in the field of manufacture of cranes.

The other companies whose proposals have been given a goahead include Knowledge Investments (Mauritius), Gigant India Automotive, Catvision Products of Delhi, Elbee Express and Thane based Alan Dick & Company (India).

The Ministry rejected six FDI proposals that of PharmARC Analytics, Asha-Kiran Shelters Foundation of Pune, Forbes Bumi Armada, Associated Broadcasting Company, Flagship Infrastructure of Mumbai and Delhi's DLF Limitless Developers.

Also, 14 FDI proposals were deferred. The proposals included Intel Capital Corporation, ABG Shipyard, Hindalco Industries, Verizon Communications India, Reliance Broadcast Network and Essar Capital Holdings (India).