Budget may focus on attracting more FDI

Tribune News Service

New Delhi, January 27

The Union Budget could see Finance Minister Nirmala Sitharaman continuing with her last year’s endeavour to hike foreign direct investment (FDI) and impose a higher import duty in select sectors.

Last year, presenting Modi 2.0’s first Budget, Sitharaman had raised the FDI limit in manufacturing, defence and other sectors while raising import duties on over 75 items.

While the Modi 1.0 had attracted more FDI than the UPA-II regime, the worrying aspect was a falling annual rate of growth of FDI.

This time, the funds crunch will impart a sense of greater urgency to this endeavour. Among the sectors targeted for FDI hike are aviation, insurance and AVGC (animation, visual effects, gaming and comics) while those slated for a hike in import duty are mobile phone chargers, industrial chemicals, lamps, wooden furniture, candles, jewellery and handicraft items.

The sectoral FDI hike will bring in foreign funds when the rate of domestic savings has declined and government’s revenue collections will miss the target by up to Rs 2 lakh crore. “The net taxes to the Centre are likely to be short by Rs 2.5 lakh crore or 1.2% of GDP,” wrote former Finance Secretary SC Garg in a blog-post.

But the Government has to take a difficult call in hiking the insurance FDI even though this measure will please the powerful international financial markets and take some of the edge of anti-CAA\/NRC in some of the western countries. There is also the temptation of insurance companies bringing in new technologies and products. However, it will have to weigh the possibility of such companies focusing on profitable insurance lines leaving the socially-critical ones to the public sector insurance companies.

In the aviation sector, the move to hike FDI is driven more by the need to dispose of Air India but Jet Airways, which has been closed since the middle of last year, may be an unintended beneficiary. However, there are other issues that will have to be dealt with, including the Substantial Ownership and Effective Control clause which bars foreign investors from acquiring complete control if the board has two-third members as Indians.

In tandem, the government is considering proposals to impose higher duties on some sectors in order to not just reduce the trade deficit but also to encourage local manufacturing. The higher duties this time are expected to cover a much wider swathe of items than Sitharaman’s last year’s Budget proposals.

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