Post by bhumika on Jun 9, 2006 11:14:03 GMT 5.5
World knocking on India's door
As the finance minister unveils his budget, foreign investors wait to see if he will remove barriers to hot sectors, says Anto Joseph
Sunday February 26, 2006
The Observer
When Palaniappan Chidambaram delivers his budget speech on Tuesday, global markets will pay great heed. For the suave, Harvard-educated finance minister of India, the 2006-07 budget is more onerous than in previous years, with the country in the midst of an economic boom, galloping stock markets and frenzied growth in infrastructural development. Foreign investors eagerly await his proposals; will India, the fastest-growing democracy, dislodge all entry barriers for them and open up 'hot' sectors for 100 per cent foreign direct investment (FDI)?
Article continues
Chidambaram, one of the architects of India's economic reforms under the late Prime Minister Rajiv Gandhi, would have liked to open up retail, insurance and banking for 100 per cent FDI, but opposition from the parties of the left, as well as some in his own party, has so far prevented that. So while preparing the ground for such an eventuality in the near future, his budget is likely to focus on supplementary measures to encourage FDI, say government officials.
According to a study by Grant Thornton India, 2005 saw significant FDI growth in India, and it was a bumper year for mergers and acquisitions, with 467 deals compared with 360 in 2004. India is now seeking to increase its FDI to $10bn (£5.7bn) in 2006-2007, up from $6.5bn in 2005.
Chidambaram is expected to take the 'India Everywhere' campaign, launched at the World Economic Forum at Davos, to the world. It focuses on the benefits of investing in the 'world's fastest growing free-market democracy', where '15 years, six governments, five prime ministers, one direction' have underscored commitment to the free market agenda.
With 8 per cent GDP growth today, India is exhibiting a new sense of self-confidence and optimism. Economic trends for 2006 indicate continued buoyancy with a resurgence of industrial growth, a continuation of the robust services sector growth and expectations of improved agricultural performance following normal monsoons.
Vallabh Bhansali, chairman of Enam Financial Consultants, says India is fast becoming a mature market, attracting foreign players: 'The major areas where India will see a lot of action by foreign players are real estate, infrastructure, manufacture and retail. Except in retail, the government has opened up other sectors for 100 per cent FDI and the budget is expected to give it a big boost.'
KV Kamath, managing director and chief executive of ICICI Bank, India's largest private sector bank, says economic growth has been driven by greater integration into global markets, leadership in knowledge-based sectors, strong domestic demand driven by increased household incomes and a revitalised manufacturing industry: 'We need large investments in roads, ports, airports and power generation and distribution to support business activity,' he says. 'The budget will play an important part in maintaining economic momentum.'
The government is trying to attract more FDI in sectors such as infrastructure, retail and manufacturing. On 10 February it liberalised FDI policy, permitting foreign investment up to 100 per cent for various activities such as setting up greenfield airport projects; laying of natural gas/LNG pipelines; cash and carry wholesale trading and export trading; power trading; transmission and distribution; coal and lignite mining for consumption by power projects; iron and steel; and cement production. Special economic zones and free trade warehousing zones were also given 100 per cent eligibility.
More importantly, India has allowed FDI up to 51 per cent, with approval from the Foreign Investment Promotion Board, for retail trade in 'single brand' products with a view to attracting investment, technology and best global practices. Industry officials said 'single brand' retailing would cover only products that are branded during manufacturing, and that products should be sold under the same brand internationally.
This would mean that retailers such as Nike, Christian Dior, Gucci, Gap, Zara and Nokia can set up their operations with a 51 per cent stake in the company and management control. However, big retailers such as Tesco, Wal-Mart and Sainsbury's will have to wait longer.
'This latest liberalisation of [the] foreign investment regime is one more concrete step to facilitate FDI. The initiative is a clear manifestation of the government's policy to invite foreign participation in the fundamentally strong, promising and booming Indian economy,' says a senior analyst in Mumbai.
Global brands such as Reebok, Benetton, Adidas, and more recently, Dior are already present in India through the franchising route. 'The government decision has opened up one more channel to expand our operations through joint ventures,' said Gagan Singh, managing director of Benetton India.
Elisabeth Ponsolle Des Portes, president of Comite Colbert, who was in India with the business delegation that accompanied French president Jacques Chirac last week, welcomed the move, but hoped that the government would soon scale it up to 100 per cent.
'President Chirac is taking the opportunity to ask for further steps to be taken by India - 100 per cent FDI in retailing,' she said. 'The opening up of the retail market to luxury products will provide more employment opportunities and drive economic growth.'
Comite Colbert represents a host of French luxury brands such as LV, Chanel and Dior. 'We have only nine of our 69 brands represented in India, whereas in China, 90 per cent of our products are present. This is due to the obstacle of FDI in retailing and the very high import tariff structure in India,' she says.
The government announcement has already generated excitement in the market. For instance, HCL Infosystems, the sole distributor of Nokia phones in India, announced that the Finnish handset maker would start distributing mobile phones in India on its own.
The decision by Nokia comes as the mobile phone subscriber base in India is expanding by leaps and bounds. More than 4.5 million phones have been sold in the past two months and it is estimated that the market will quadruple to 300 million by the end of 2009, according to Gartner.
The global corporate world will be waiting to see if Chidambaram has the ability to open the door to India still further. It knows that it's not a question of if, but when, and is impatient to exploit this fast-growing market. Can the finance minister afford to keep them waiting?
• Anto Joseph writes for the Economic Times of India.
As the finance minister unveils his budget, foreign investors wait to see if he will remove barriers to hot sectors, says Anto Joseph
Sunday February 26, 2006
The Observer
When Palaniappan Chidambaram delivers his budget speech on Tuesday, global markets will pay great heed. For the suave, Harvard-educated finance minister of India, the 2006-07 budget is more onerous than in previous years, with the country in the midst of an economic boom, galloping stock markets and frenzied growth in infrastructural development. Foreign investors eagerly await his proposals; will India, the fastest-growing democracy, dislodge all entry barriers for them and open up 'hot' sectors for 100 per cent foreign direct investment (FDI)?
Article continues
Chidambaram, one of the architects of India's economic reforms under the late Prime Minister Rajiv Gandhi, would have liked to open up retail, insurance and banking for 100 per cent FDI, but opposition from the parties of the left, as well as some in his own party, has so far prevented that. So while preparing the ground for such an eventuality in the near future, his budget is likely to focus on supplementary measures to encourage FDI, say government officials.
According to a study by Grant Thornton India, 2005 saw significant FDI growth in India, and it was a bumper year for mergers and acquisitions, with 467 deals compared with 360 in 2004. India is now seeking to increase its FDI to $10bn (£5.7bn) in 2006-2007, up from $6.5bn in 2005.
Chidambaram is expected to take the 'India Everywhere' campaign, launched at the World Economic Forum at Davos, to the world. It focuses on the benefits of investing in the 'world's fastest growing free-market democracy', where '15 years, six governments, five prime ministers, one direction' have underscored commitment to the free market agenda.
With 8 per cent GDP growth today, India is exhibiting a new sense of self-confidence and optimism. Economic trends for 2006 indicate continued buoyancy with a resurgence of industrial growth, a continuation of the robust services sector growth and expectations of improved agricultural performance following normal monsoons.
Vallabh Bhansali, chairman of Enam Financial Consultants, says India is fast becoming a mature market, attracting foreign players: 'The major areas where India will see a lot of action by foreign players are real estate, infrastructure, manufacture and retail. Except in retail, the government has opened up other sectors for 100 per cent FDI and the budget is expected to give it a big boost.'
KV Kamath, managing director and chief executive of ICICI Bank, India's largest private sector bank, says economic growth has been driven by greater integration into global markets, leadership in knowledge-based sectors, strong domestic demand driven by increased household incomes and a revitalised manufacturing industry: 'We need large investments in roads, ports, airports and power generation and distribution to support business activity,' he says. 'The budget will play an important part in maintaining economic momentum.'
The government is trying to attract more FDI in sectors such as infrastructure, retail and manufacturing. On 10 February it liberalised FDI policy, permitting foreign investment up to 100 per cent for various activities such as setting up greenfield airport projects; laying of natural gas/LNG pipelines; cash and carry wholesale trading and export trading; power trading; transmission and distribution; coal and lignite mining for consumption by power projects; iron and steel; and cement production. Special economic zones and free trade warehousing zones were also given 100 per cent eligibility.
More importantly, India has allowed FDI up to 51 per cent, with approval from the Foreign Investment Promotion Board, for retail trade in 'single brand' products with a view to attracting investment, technology and best global practices. Industry officials said 'single brand' retailing would cover only products that are branded during manufacturing, and that products should be sold under the same brand internationally.
This would mean that retailers such as Nike, Christian Dior, Gucci, Gap, Zara and Nokia can set up their operations with a 51 per cent stake in the company and management control. However, big retailers such as Tesco, Wal-Mart and Sainsbury's will have to wait longer.
'This latest liberalisation of [the] foreign investment regime is one more concrete step to facilitate FDI. The initiative is a clear manifestation of the government's policy to invite foreign participation in the fundamentally strong, promising and booming Indian economy,' says a senior analyst in Mumbai.
Global brands such as Reebok, Benetton, Adidas, and more recently, Dior are already present in India through the franchising route. 'The government decision has opened up one more channel to expand our operations through joint ventures,' said Gagan Singh, managing director of Benetton India.
Elisabeth Ponsolle Des Portes, president of Comite Colbert, who was in India with the business delegation that accompanied French president Jacques Chirac last week, welcomed the move, but hoped that the government would soon scale it up to 100 per cent.
'President Chirac is taking the opportunity to ask for further steps to be taken by India - 100 per cent FDI in retailing,' she said. 'The opening up of the retail market to luxury products will provide more employment opportunities and drive economic growth.'
Comite Colbert represents a host of French luxury brands such as LV, Chanel and Dior. 'We have only nine of our 69 brands represented in India, whereas in China, 90 per cent of our products are present. This is due to the obstacle of FDI in retailing and the very high import tariff structure in India,' she says.
The government announcement has already generated excitement in the market. For instance, HCL Infosystems, the sole distributor of Nokia phones in India, announced that the Finnish handset maker would start distributing mobile phones in India on its own.
The decision by Nokia comes as the mobile phone subscriber base in India is expanding by leaps and bounds. More than 4.5 million phones have been sold in the past two months and it is estimated that the market will quadruple to 300 million by the end of 2009, according to Gartner.
The global corporate world will be waiting to see if Chidambaram has the ability to open the door to India still further. It knows that it's not a question of if, but when, and is impatient to exploit this fast-growing market. Can the finance minister afford to keep them waiting?
• Anto Joseph writes for the Economic Times of India.