The Telegraph
Since 1st March, 1999
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Lobbying wave lashes FDI floodgates

New Delhi, Feb. 21: A lobbying war has broken out in the corridors of power in favour of, and against, unshackling foreign direct investments in key sectors like banking, construction, retail and media. The issue of relaxing laws on special economic zones is also at the centre of a tug-of-war in the run-up to budget.

The Congress-led government, especially finance minister P. Chidambaram, is keen to continue the impetus to foreign investments it gave by allowing FDI in telecom in the teeth of opposition from the Left.

Senior members of Prime Minister Manmohan Singh's government, however, have been preaching caution and are against the big burst of announcements that North Block mandarins would like in the budget.

Impatient industrialists who want these sectors to be opened up have, however, stepped up their lobbying to get some of the proposals through.

The biggest hurdle to the opening up is the Left, whose leaders will warn against a fresh FDI hike at a meeting they will hold with Singh and Chidambaram before the budget.

However, some within the UPA cabinet feel political deals could be eventually struck to turn their objections into token shows of protests.

They point out that positive results in the Bihar and Jharkhand elections could stiffen the Congress's resolve and ensure bolder announcements in the budget.

The government has already, at the invitation of the Prime Minister, picked the brains of top Indian expatriate business honchos, including Victor Menezes, former CEO of Citibank and currently vice-chairman of Citrigroup, Indra Nooyi, CFO of Pepsi and venture capital czar Vinod Khosla, on what could be done to step up FDI.

On their advice, it is readying a policy that will allow single-window approvals for units in special economic zones, besides special tax breaks for developers of SEZ units and offshore banking units located in them.

The group has also called for huge special economic regions against the current policy of small zones where different labour and financial laws will be in force to make investments easier.

Specific areas like financial services, software and infotech services, biotech and pharma have been picked as areas which could play a pivotal role in the new FDI thrust.

But while this is likely to pass muster, battlelines are already drawn over other FDI "thrusts" in banking, retail, media and construction.

The Left and the Congress- led government is already at loggerheads over moves to open up retail trade.

The Left feels will this will jeopardise the livelihood of millions of small shop-owners and workers. RSP leader and Left-UPA coordination committee member, Abani Roy had shot off a letter to Manmohan Singh seeking a "far more serious consideration ... before the government decides on a course of action" as this will "mean a death blow to millions of tiny independent stores" and some 25 million workers they support.

Top finance ministry officials, however, feel FDI in retail could prove to be "goldmine" in terms of foreign investment. They feel allowing up to 26 per cent in the current phase could meet objections posed against "giving away retail trade control".

Last week, the Union cabinet also deferred proposals to relax norms for foreign investment in the realty sector. The government wants to relax norms which stipulate that foreign direct investments be allowed only in townships spread over at least 100 acres of land and instead stipulate a minimum area of 25 acres. The changes could also see FDI being allowed in commercial buildings with a floor area of 50,000 square feet.

The problem with such a relaxed norm is that it would mean that FDI would be allowed into virtually every second commercial building in India. The move could add fire to the already skyrocketing prices of commercial property in urban India.

But the biggest battle and lobbying war going on is for relaxing FDI norms in private Indian banks. Embassies of the US and European Union nations have been lobbying for greater access for foreign banks in India for long.

The Left is, of course, opposed to any move to relax RBI's guideline which places a cap of 10 per cent on the voting rights of foreign investors.

Chidambaram is known to be in favour of brushing the Left's objections aside and going ahead with relaxing the RBI norm. But this will have to be a political decision and may well be determined by the battle of ballot rather than lobbying on Raisina Hill.

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