As the country dreams to become a $5 trillion economy, the government’s needs for capital are rising too. Union Budget 2019 aims at a multi-pronged strategy to raise and attract overseas funds. For the common citizen, such efforts are important because overseas money entering India would have a positive impact on our currency and push the valuation of financial assets higher, among other benefits. Let us take a closer look.
FDI inflows into India have remained robust despite global headwinds. Global Foreign Direct Investment (FDI) flows slid by 13 per cent in 2018, to $1.3 trillion from $1.5 trillion the previous year – the third consecutive annual decline, according to UNCTAD’s World Investment Report 2019. India’s FDI inflows in 2018-19 remained strong at $64.375 billion, marking a 6 per cent growth over the previous year.
To further consolidate the gains in order to make India an attractive FDI destination, Sitharaman said the government would examine suggestions of further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders. “The relaxation of FDI norms would act as a catalyst for foreign exchange inflows,” said Hiten Kotak, partner and leader M&A Tax, PwC.
The measures announced will play a positive role in attracting more global investment and a much-needed FDI boost for key sectors. This, in turn, will translate into an all-round growth of the economy and create an encouraging ecosystem for investors, says Vikas Dawra, joint managing director and CEO, YES Securities.
Also, 100 per cent FDI will be permitted for insurance intermediaries. “For the insurance sector, the government proposed a100 per cent FDI for insurance intermediaries, thereby making India a more attractive destination for FDI. This is a positive move for the industry, and may help in better penetration of insurance products,” said Tarun Chugh, managing director and CEO, Bajaj Allianz Life. Ashok P Hinduja, chairman, Hinduja Group of Companies (India), pointed out that while plans to enhance FDI are an interesting announcement, it remains to be seen how these and other policy announcements are rolled out.
An important determinant of attracting cross-border investments is the availability of investible stock to the FPIs. This issue assumes greater significance in view of the gradual shift, from stock targeted investments, towards passive investment whereby funds track global indices composition of which depends upon available floating stock. Accordingly, the FM proposed to increase the statutory limit for FPIs investment in a company from 24 per cent to sectoral foreign investment limit with the option given to the corporates to limit it to a lower threshold. FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs. It has been proposed to rationalise and streamline the existing KYC norms for FPIs to make it more investor-friendly without compromising the integrity of cross-border capital flows. The government is considering merging the NRI-Portfolio Investment Scheme Route (Schedule 2) with the Foreign Portfolio Investment Route (Schedule 3). This coupled with extended limit up to sectoral cap for FPI would accelerate foreign funds inflow into India, says Suresh Surana, founder of RSM Astute.
The government has announced its intention to invest Rs 100 lakh crore in infrastructure over the next five years. To this end, it has been proposed to set up an expert committee to study the current situation relating to long-term finance and our past experience with development finance institutions, and recommend the structure and required flow of funds through development finance institutions.
For bringing better public ownership of the PSUs and bring greater commercial and market orientation of the listed PSUs, the government will take necessary steps to meet public shareholding norms of 25 per cent for all listed PSUs and raise the foreign shareholding limits to maximum permissible sector limits for all PSUs which are part of Emerging Market Index. India’s sovereign external debt to GDP is among the lowest globally at less than 5 per cent. The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will have a beneficial impact on demand situation for the government securities in the domestic market. “Foreign savings need to be brought in more aggressively. The step in this direction that is most important, at least symbolically, is the decision to finally break the taboo against the sovereign government seeking funds abroad. This could be the clichéd game changer for Indian borrowers abroad,” says Abheek Barua, chief economist, HDFC Bank. (The author is a journalist with 14 years of experience)