The impact of the US aftershock on foreign direct investment (FDI) will be a negative one according to government sources.
Senior officials in the finance ministry said a downturn in FDI is a certainty thanks to the terrorist attack on the twin World Trade Towers. This is because, in the short turn, the warlike situation in the Indian neighbourhood has the potential to scare away investors from abroad. In terms of both utilisation and approval, the percentage is expected to dip. In the last fiscal, the total approval of FDI has been about $2.5 billion against a target of $5 billion.
In the medium-term, the new threat for fresh FDI into the country is the alternative prospect of more attractive investment opportunities opening up in the US as it starts rebuilding after the attacks. Sources said along with the slow pace of liberalisation of investment opportunities in the country FDI flow is likely to be affected also by the continuous dip in interest rates in the US and a corresponding hardening of rates here. They said the economic slowdown in India this year that would be further accentuated by the present developments meant the interest rates in the economy was likely to harden at the present rate.
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The steering committee on FDI for the 10th Plan which met today, is also likely to revise the outlook downward. Sources said, while the committee had not made any firm projection on the quantum of FDI that the country could expect, the new scenario after the attack on New York by terrorists has definitely turned the heat on. The committee has been set up to formulate the FDI scenario for the different sectors for the 10th Five Year Plan beginning from April 2002 next year.
Sources said, with FDI growth rates turning sticky over the past couple of years, yesterday