The Reserve Bank today said efforts should be made to attract more Foreign Direct Investment (FDI) in the country, as they are more stable than portfolio investments. These remarks come a day after the central bank said that environment-sensitive policies are hurting FDI in mining, township and ports sector.
“..The composition of capital inflows needs to shift towards longer-term commitments, such as FDI (Foreign Direct Investment),” the RBI said today in its third quarter monetary policy review.
During the April-November period, FDI fell to USD 19 billion year-on-year, from over USD 25 billion in the corresponding period last year.
In comparison, foreign institutional investors pumped in about USD 30 billion into the Indian economy during April- November period of the current fiscal compared to over USD 20 billion in the year-ago period.
The Reserve Bank said the capital flows into India may be adversely affected on rebound into the global economy.
“Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of our external sector,” RBI said.
The bank had yesterday said that the moderation in FDI inflows to India during April-November 2010 was driven by sectors such as construction, mining and business services.
“A major reason for the decline in inward FDI is reported to have been the environment-sensitive policies pursued, as manifested in the recent episodes in the mining sector, integrated township projects and construction of ports, which appear to have affected the investors sentiments,” it said in its Macroeconomic and Monetary Policy Development report.
The report added that persistent procedural delays, land acquisition issues and availability of quality infrastructure have added to the environment related issues.
“These factors, which are more structural in nature, if addressed expeditiously, could raise the share of India in the projected FDI flows to EMEs (emerging market economies) in the near future,” the RBI said.
The RBI in its third quarter policy review today warned that a high current account deficit (CAD) of 3.5 per cent of the GDP in the 2010-11 fiscal is not sustainable and may widen further with the recovery of the global economy.
In the July-September quarter this fiscal, the CAD surged by 72 per cent to USD 15.8 billion, compared to USD 9.2 billion in the same period last year due to higher imports.
CAD, that represents the difference in inflows and outflow of foreign exchange, barring capital movements, stood at 2.9 per cent of the GDP last fiscal.