India decides to welcome FDI

Jo Johnson reports in the Financial Times that the Indian government is about to make some major changes in its rules about foreign direct investment: India's Communist-backed government will on Thursday afternoon consider a sweeping liberalisation of foreign direct investment rules that would kick start a long-stalled programme of economic reforms. Kamal Nath, India's minister for commerce and industry, has proposed allowing 100 per cent foreign direct investment in a range of sectors, including airport construction, oil & gas infrastructure and cash & carry wholesale trading. The cabinet will also debate whether to allow FDI in the exploration and mining of coal, lignite and diamonds, and in the cultivation of important plantation crops such as coffee, tea and rubber.... India attracted $5.5bn in FDI in 2004-5, an increase of 18 per cent, but less than a tenth of the inflows into China. The government estimates that $150bn needs to be invested in upgrading the country's infrastructure over the next 10 years. If the new rules are approved, they will also allow foreign investment to come in by the so-called "automatic route", circumventing a cumbersome approvals process overseen by the Ministry of Finance's Foreign Investment Promotion Board.... The measures will disappoint the US and UK government, however, who have been lobbying aggressively for foreign direct investment thresholds to be allowed in the Indian retail sector and for the ownership ceiling to be raised in insurance. Mr Nath, in an interview on Tuesday, said he would be in a position to put a proposal to the cabinet permitting FDI in retail, allowing companies such as Wal-Mart and Tesco to enter into the $205bn Indian retail market, within three months. UPDATE: Tim Harford has an update suggesting that FDI liberalization on't be preceding as planned.