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Year-on-Year Foreign Investment Requirement as a % of GDP

The RBI's new headquarters in Mumbai

Increase in Capital Investment 

Various factors including the rates of savings and investment, productivity of resources, adoption of technology, availability of human capital and infrastructure, cost of finance, foreign trade and demand for the domestic product, capital flows, governance, nature of economic and regulatory institutions etc, influence the growth rate of an economy.

Reducing impediments such as delays in obtaining project clearances, clarifying processes for land acquisition and increasing access to infrastructure are crucial to boost investment and revive growth in the economy. Several steps including the setting up of the Cabinet Committee on Investment (CII) to fast tract large investment projects; strengthening of financial and banking sector; permitting FDI in areas including multi-brand retail, power exchanges and aviation etc, have been undertaken over the last few years to boost investment and growth. The Reserve Bank of India (RBI) has reduced policy rates in recent months to support a turnaround in GDP growth.

The foreign investment requirements for the Indian economy (as ratio to GDP), given by the difference between the domestic investment requirement and what can be financed from domestic savings, as estimated by the Planning Commission, for the 12th Five Year Plan period is given in the following table:

Year

Foreign investment requirement (% of GDP)

2012-13

4.8

2013-14

3.8

2014-15

3.0

2015-16

2.8

2016-17

2.5

The measures to increase domestic and foreign investment, inter-alia, include setting up of the CII to fast track large investment projects; strengthening of financial and banking sector; permitting FDI in areas including multi-brand retail, power exchanges and aviation etc.  The Union Budget 2013-14 has outlined several initiatives to boost investment in infrastructure and industry, that inter-alia include encouraging Infrastructure Debt Funds, credit enhancement to infrastructure companies raising the corpus of Rural Infrastructure Development Fund, introduction of investment allowance for new high value investments etc. The RBI and the Government has undertaken measures including enhancing all-in-cost ceiling for external commercial borrowings between 3-5 years maturity, higher interest rate ceiling for foreign currency Non-resident deposits, deregulation of interest rates on rupee denominated NRI deposits, administrative steps to curb currency speculations etc, that would facilitate capital inflow.

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Tags: Cabinet CommitteeEconomic growthEconomy of Indiaforeign direct investmentGDPGovernmentGross domestic productReserve Bank of India

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