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With growth trending below 5% for two successive years, Finance Secretary Arvind Mayaram today said India would prefer the FDI route over FII inflows if overseas resources need to be generated to spur economic expansion to its potential level.
"I believe our potential growth rate is 8%. And to get there, we need to develop resources. And that which we cannot generate domestically must come from outside and if it comes from outside then we prefer it in the form of foreign direct investment (FDI) rather than foreign institutional investment (FII)," Mayaram said at an event here.
India's gross domestic product (GDP) expanded 4.5% in 2012-13, the slowest pace in the past decade, and at 4.7% in 2013-14. The Reserve Bank of India this month retained its GDP growth estimate of 5 to 6% in 2014-15.
Foreign investment is considered crucial for India, which needs an estimated $1 trillion in the five-year period ending March 2017 to overhaul infrastructure such as ports, airports and highways to boost growth. A decline in foreign investment could affect the country's balance of payments and the rupee.
Overall foreign inflows into the country grew 8% to $24.29 billion in the previous financial year from $22.42 billion in 2012-13.
To further attract foreign inflows, the government plans to relax the FDI policy in sectors such as defence, railways and construction activities.
Mayaram emphasised the need to bring India back on the growth path to attract investments.
"You must remember that investments don't come because of agreements like Bilateral Investment Promotion and Protection Agreements. Investments come if there are opportunities to make profits. Opportunity to make profits can only happen when growth is higher and when the economy becomes robust," he said.
On Sunday, Mayaram said at G-20 meeting in Australia that the policies of the new government will deepen the reform process to put the economy on a sustainable and balanced high-growth path.
