India finance minister looking to US investment

Finance Minister Chidambaram Palaniappan is currently visiting the US to meet with the executives of big American firms with the hope of securing investment in India.

Reuters reports that he is meeting with individuals from the likes of Microsoft, Walmart, Lockheed Martin International and Boeing, and is due to return to India on 14 July.

The trip is part of India's attempts to revive the rupee through foreign direct investment (FDI), which many economists see as a long-term way to stabilise the country’s economy.

Monday saw the rupee drop to a record low of 61 Rs to the dollar; it has lost 10% of its value in recent months.

In response to the country’s lacklustre economic performance, Mr Chidambaram has been attempting to boost FDI by loosening restrictions on companies overseas that wish to invest in the defence, telecoms, pharmaceutical and retail sectors.

While not all of his cabinet are behind the potential solution to India’s plight, Prime Minister Manmohan Singh has backed proposals.

He supports lifting FDI in the telecoms sector to allow for 100% foreign investment and this could have the knock-on effect of liberalising attitudes towards the ceilings in other areas, particularly defence.

Although Defence Minister AK Antony has opposed lifts to the FDI cap in the sector, he has shown a willingness to lift the limit above its current 26% depending upon the clearance of each case.

Furthermore, Mr Singh hopes to allow for increased FDI in pensions and insurance, raising the limit to 49%. This signals an opportunity for investors to tap into long-term savings.

Allowing for greater levels of FDI is expected to increase confidence among investors, lifting India's cash inflows and giving a substantial boost to the rupee, which is necessary to support the government’s welfare plans, such as food security. More than a dozen sectors have been suggested for greater FDI caps.

Businesses hoping to capitalise on India's relaxed attitude to FDI will need to understand complex local governance and regulatory requirements; speak to local experts in TMF Group’s Indian offices about investing in the country.

 
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