India has the potential to attract $100 billion foreign direct investment (FDI) in the next five years at the rate of $20 billion a year, enhancing the country's GDP growth to over 8 per cent per annum, provided appropriate measures are taken, a report prepared by McKinsey & Company for the American Chamber of Commerce in India (Amcham-India) has stated.
The report titled "Achieving a quantum leap in India's foreign direct investment" also states that in such a scenario, the country will also see in excess of 1 million jobs being created per annum.
Amcham, a representative body comprising a list of top US firms which have made substantial foreign direct investment (FDI) in the country, has suggested removal of sector specific barriers, relaxation in foreign ownership restrictions and reduction of red tape to fuel FDI in the domestic industry, which alone could attract $43 billion FDI over the next five years.
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The association also said that India can also attract over $49 billion FDI through the privatisation programme.
The ministry in charge of disinvestment should be strengthened by giving it administrative control of PSUs until privatisation is completed. It cited examples from Chile and East Germany.
The McKinsey report also suggested setting up of an apex committee under the leadership of the commerce and industry ministry and comprising ministers and secretaries of key ministries to review sector specific policies, expedite current projects and monitor implementation on a quarterly basis.
Besides this, the report also suggested that an advisory committee comprising CEOs of foreign companies and their JV partners in India.
This committee will meet with the apex committee every quarter to provide feedback on policies and report the status of implementation.
Incidentally, the US is the largest foreign direct investor in the country.
India currently attracts FDI of only $2.5-3 billion per annum, representing 0.5 per cent of its GDP, when compared to China's $43.2 billion, Brazil's $19.3 billion, or even Poland's modest figure of $4.9 billion or Malaysia's $4.6 billion per year.
Not only is the absolute amount much higher for these countries, but these countries' FDI inflows as a percentage of GDP are in the region of 3-6 per cent.
Moreover, over the last nine years the actual FDI inflow into the country has been only a quarter of the approved figures, demonstrating that the proposals for investments are often not translated into actual investments on the ground.
The report, which is based on extrapolations of experiences of four other developing countries in the selected sectors and interviews with Indian government departments, the Indian corporates and US and non-US multinationals operating in India includes, several key recommendations.
The report covers four specific sectors including energy, telecom, financial services and food processing seeking detailed interviews and comments from the investing communities with specific recommendations.