India becoming Major Destination for FDI Inflow - K. R. Sudhaman

Investment from abroad before economic reforms began in 1991 used to just trickle as foreign investors were wary of opportunity in India. But situation changed rapidly and more and more investment started pouring in with new policy in place. As various sectors were opened up gradually the FDI flow started steadily increasing and it cumulatively stood at 130 billion dollars by 2009.

India is far behind China, which attracts around 60 billion dollars annually. But today things have changed and India is becoming a major destination for FDI inflow. India received around 35 billion dollars in 2008-09 including reinvestments by foreign investors. In 2009-10 too FDI inflow is expected to be around 35 billion dollars, same as previous year despite global slowdown in the face of financial crisis.

Global slowdown in FDI flow

UNCTAD’s 2009 World Investment Report had noted a fall of global FDI inflows, from a historic high of 1.97 trillion dollars in 2007 to 1.69 trillion dollars in 2008, a decline of 14%. UNCTAD had subsequently predicted a fall in global FDI investment flows by 30% from 1.7 trillion in 2008 to 1.2 trillion in 2009.

The Commerce and Industry Minister Shri Anand Sharma said recently that even Organisation for Economic Cooperation and Development in its latest report on investment released in March 2010 has stated there would be a significant stagnation in the global investment activity.

OECD has noted that the average monthly Merger and Acquisition (M&A) activity in the past 12 months was just below 50 billion dollars. The last time monthly M&A activity fell below 50 billion dollars was in April 2006.

Year on Year global M&A activity is now at its lowest level since the beginning of the global economic crisis at around 35% of the levels reached two years ago.

Government sets $50 bln FDI by 2012 &$75 bln by 2014

These are clear evidences that hard times are ahead for global capital flows but India seems to be an exception where capital flows are surging resulting in appreciation of Indian rupee.

Shri Anand Sharma said the Government has set a target to raise FDI inflow into the country to 50 billion dollars annually by 2012 and raise it further to 75 billion dollars annually by 2014. These are not unrealistic targets and one would not be surprised if FDI in-flows into India become more than that of China in the coming years.

Global Community wants India to grow

The Global community wants India to grow and it is time to take advantage of the situation, the Prime Minister Dr. Manmohan Singh said while returning from his eight-day tour of U.S. and Brazil recently.

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The World takes a benign view of India’s growth. We should take advantage of that (situation) because we don’t know how long it will last, Dr. Singh told reporters.

The Prime Minister was returning from Brazil after attending India-Brazil-South Africa (IBSA) and Brazil-Russia-India-China (BRIC) summits there.

All these show the enthusiasm the World business community and polity had on investments and confidence they had on India.

Renowned Mangement guru C.K.Prahalad, who died in U.S. recently wanted India to become a manufacturing hub of the World. He was developing manufacturing strategy in collaboration with Planning Commission based on India’s core competences.

Foreign Direct Investment into India is a capital account transaction under the Foreign Exchange Management Act (FEMA). The Government and Reserve Bank of India regulate such transactions.

While in some of the sectors, Foreign Direct Investment is allowed 100% and in some others, it ranges from 26% to 74%. There are some other sectors considered sensitive and hence are not opened up. There are few sectors like retail where allowing Foreign Direct Investment would help the economy particularly perishable commodities like fruits and vegetables in which annual loss is put at Rs 30,000 to Rs 40,000 crore due to lack of cold storage and pan-India market facility.

But there is stiff opposition to opening up retail sector as some fear that it would be a threat to kirana shops. Nearly 90% of retail trade is by small traders and shopkeepers in the country. But experience of the developed world show that retail chains and small shops can exist side by side as in United States and other developed countries.

Government keen to push FDI liberalisation further

There is therefore need for further opening up and allowing of more sectors for foreign direct investment.

As the Minister Shri Anand Sharma himself said that it had been felt, through interaction with various investors, counterpart government organisations and other stakeholders, that there is a need for further simplification and consolidation of the FDI policy framework, so as to make it more comprehensible to all investors and stakeholders.

Consolidated FDI policy announced

Accordingly the Government recently announced a consolidated FDI policy framework which would ensure that all information on FDI policy is available at one place.

There are as many as 178 RBI notifications and Government press notes regarding FDI policy issued from time to time. What the Government has done is to compile a single policy document to facilitate investors. This is a welcome development as plethora of notifications, were not only confusing, difficult to lay one’s hand besides comprehending them.

While consolidating the FDI policy documents, Government has ensured that overlapping policy statements, redundant instructions and outlived policy issues were weeded out.

The Prime Minister Dr. Manmohan Singh said at the 2008 World Economic Forum that our policy will be guided by the desire to make India even more attractive for Foreign Direct Investment. We are particularly keen to rationalise the simplify procedures so as to create an investor friendly environment.

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The consolidation of FDI policy was a step in that direction. It has integrated all prior regulations on FDI, contained in FEMA, RBI circulars and various press notes to reflect the current regulatory framework.

This consolidation provides simplification of the FDI policy, greater clarity of investment rules and predictability of policy. This document will be updated every six months to facilitate investors.

FDI is allowed in some sectors and up to certain limit is allowed through automatic route. Some others are approved by Foreign Investment Promotion Board. The major ones particularly those which are sensitive and involve huge investments are cleared by the Cabinet.

Limit for FIPB approval raised to Rs 1200 cr

Recently the Government raised the limit for approval of those foreign direct investment proposals, which needed FIPB clearance. Earlier FIPB, headed by Finance Secretary, is to clear foreign investments up to Rs 600 crore, which has to be finally approved by the Finance Minister. Now that limit has been doubled to Rs 1,200 crore, helping the investors. Any foreign investment beyond Rs 1,200 crore only will have to go to cabinet for approval.

India has come a long way since economic reforms were started in 1991 in attracting foreign investment. This has helped in boosting country’s foreign exchange reserves to nearly 300 billion dollars now. Also it has helped in injecting competition, bringing in new and sophisticated technology particularly in manufacturing and services sectors and get new markets abroad boosting country’s exports.

But as Dr. Manmohan Singh himself says, a lot more needed to be done and more reforms and more opening up particularly the financial sector, retail and like are widely expected.

Commercial premises for Lease in Karwar

Commercial premises in *Karwar* with the following features :-

Total area - 1342sq.feet on the First Floor in a Five year old building,

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Opposite AXIS Bank and Punjab National Bank

next to State Bank of Mysore

Near to Federal Bank, and ICICI Bank

Houses Karnataka Vikas Bank, lawyer's office and a DTH showroom in the same floor,

a Bakery, Optician shop and Hardware Showroom on the ground floor

with wide open public parking in front of the building,

with electricity and water supply.

Contact if Interested - ty.naik@gmail.com M-9986538619

Dream a dreamless dream | Hard News

Dream a dreamless dream | Hard News

Builders blame the government and the government blames the builders. But ordinary folk can only look at enticing billboards and luxurious ads and wonder if their dream of owning a modest house will ever come true. Surely, this is one possibility that can never happen

Akash Bisht Delhi

Rohit Handa's eyes lit up when he saw world's cheapest car, Nano, at the recently held Auto Expo 2008 in New Delhi. His dream of owning a car and house no longer looked like a dream. An engineer with the Municipal Corporation of Delhi for more than 15 years, Rohit has been saving money all this while to fulfil his dream of owning a car and a house. He has decided to buy the car when it will be available. After fixing an appointment with a real estate broker, he told the broker about his need of a decent apartment in the range of Rs 30-35 lakh in Delhi. “This broker just looked with pity, laughed and said it is impossible to get a two-bedroom apartment in this range. He told me that to own such a house I would need at least Rs 60-80 lakhs. My hopes were dashed to smithereens. I just couldn't imagine that for a two bedroom apartment I would have to pay this much,” says Handa. “And from where can I get this much money.”

This middle-class engineer is not the only one who is feeling the heat of rapidly shooting real estate prices. He, like thousands of others, has been running from pillar to post in search of affordable houses, but in vain. Owning a house in Delhi or any other metro has become an impossibility for the so-called rising, upwardly mobile classes. “Even if I decide to go for a loan of Rs 60 lakh, me and my wife will have to part away with 60 per cent of our salary every month on EMIs and I just can't afford that. So the only option left is to live in a rented house and shift to some other smaller town after our retirement,” rues Handa.

Vikram Ahuja, owner of Ahuja Realty in Saket, says, "A lot of people come to me and enquire about flats in the range of Rs 30-40 lakh and I have to tell them that there are no flats available in Delhi at such rates. Forget about Delhi, no such flats are available in Gurgaon as well." This story is not confined only to Delhi. Several other metros (see box) have also witnessed a quantum leap in real estate prices of late. Housing has become a nightmarish phenomenon for urban residents with modest salaries.

While several new small townships are mushrooming near 'Tier-I Cities' (Delhi, Bangalore, Mumbai etc), they lack infrastructure. The ones which do, they come with a hefty price tag. Many speculators have invested money in real estate and have blocked houses which they sell after the prices shoot up. “More than 50 per cent of houses and flats in Dwarka and NCR region are being used for speculative purposes. Delhi still has genuine buyers and sellers but I cant predict the future as a lot of NRI’s and rich businessmen from India and abroad are eyeing Delhi as their next destination. If these 50 per cent houses are released the prices of property will definetely fall,” informs Harpreet Singh of Property Vertical in New Delhi.

Hence, the only option available for burgeoning middle and lower income groups is to move to 'Tier-2 and Tier-3 Cities' (smaller towns like Pune, Chandigarh, Lucknow, Nagpur, etc), which have lesser job and career options.

Sarabjeet Kaur is a school teacher and a single mother and has been living in a one-room flat for past nine years. She says,“I have been saving money for two reasons: primarily for my daughters’ marriage and secondly to buy a house where I can spend my old age.” When she enquired about flats in Delhi, she got a shock of her life. No flat in Delhi or even NCR costed below Rs 50 lakhs and hence she decided to dump the idea and is uncertain about her old-age.

The Indian economy is witnessing a nine per cent growth which is evident with the Sensex soaring to new heights, rising per capita income and capital being pumped into the economy by foreign investors in different sectors. This has led to a housing bubble, especially in the cities where prices have been rising every other day. “A two-bedroom apartment that would cost around Rs 30 lakh five years ago is going for Rs 80-90 lakh today,” says Rakesh Ranjan of Perfect Homes, a real estate agency. Land prices have gone up from 30 to 100 per cent in the past one year and real state stocks have risen by an astounding 2,000 per cent.

Kumar Gera, Chairman, Confederation of Real Estate Developers Association of India (CREDAI), said, “Though the real estate sector in the country is growing at a fast rate, it is not benefiting everyone. The sum total of direct and indirect taxes, duties and levies, amounts to a significant figure, almost in excess of 25 per cent, for a housing unit that has a pan India average cost of Rs 2,700 per sq ft. It negates the impact of this boom and widens the gap between what one can afford and what is available. Which is why, there is an urgent need to find ways to reduce these costs in order to deflate the price of the end product.”

The ASSOCHAM, in its recent report, stated that in 2007, real estate ended with a growth rate of 35-38 per cent. Merrill Lynch has predicted that the Indian realty sector is poised to grow from $12 billion in 2005 to $90 billion by 2015. This has fuelled the speculations: will this rapid growth balance itself out, or is it a bubble which will inevitably burst?

“I won't say it's a bubble, but yes, a lot of builders are focusing on luxury apartments. There is a huge demand and supply gap which in the future might lead to a fall in prices. Every builder wants to build luxury homes while no one's really looking towards building affordable houses for the rising middle class. These kind of homes have huge potential in the future but builders shy away from such projects as they do not offer huge incentives,” says Nainesh K Shah, Executive Director, Everest Developers.

Excess supply of luxury homes in Delhi and especially NCR region has left most middle-class families in despair. “Whenever I go and ask for a descent apartment, brokers show me luxury apar-tments and I am fed up of telling them that since I can’t afford them, I can’t buy them. Their answer is that they have only such flats and for low-cost flats I should go to smaller cities,” says Rajinder Singh, a retired postmaster. He has lost hope and says that he just doesn’t have the courage to do house searching anymore. He now prefers to stay in a rented house.

With rapid urbanisation, one of the biggest challenges the government will be facing would be providing affordable housing to people who don't have huge incomes, especially the low middle class and the poor. According to National Urban Housing and Habitat Policy 2007, India's urban population in 2001 was 286.1 million — 27.8 per cent of the total population. Over the past five decades, the annual growth rate of urban population ranged between 2.7 to 3.8 per cent. During the past decade of 1991-2001, the urban population of India increased at an annual growth rate of 2.7 per cent — 0.4 per cent lower than that registered during the preceding decade.

The process of urbanisation is marked by increasing concentration in larger cities. In 2001, 68.7 per cent of the total urban population was living in Tier-I Cities (with population of over 1,00,000). The share of medium and small towns in the total population stood at 21.9 per cent and 9.4 per cent respectively. However, the urban population is expected to become 576 million in 2030 from the current 328 million.

Kumari Selja, Minister of State, Housing and Poverty Alleviation, in a recent conference organised by CREDAI in Delhi said, “The urban housing backlog with increased urbanisation in India assumes alarming proportions, especially for the Economically Weaker Sections (EWS) and Low-Income Groups (LIG), which constitute more than 99 per cent share of total housing shortage of 24.71 million in urban areas. This magnitude of backlog is evident by the fact that 21 per cent of our total urban population live in slums or slum-like conditions, while 35 per cent of the households live in one-room tenements.”

The National Sample Survey Organisation (NSSO) (61st round) reports that urban poor have grown by 4.4 million between 1993-94 and 2004-05. It is, therefore, of vital importance that a new carefully caliberated National Urban Housing and Habitat Policy finds ways and means of providing 'Affordable Housing to All' with special emphasis on the EWS and LIG sectors.

Most builders at the CREDAI conference felt that affordable housing is possible only with the support of state and central governments. They said that the housing problem would be the biggest problem in next five years and the only way to address it is that the government must incentivise builders and give tax rebates, as high as 40 per cent of the total cost. Amit Bagaria, CEO of Asipac Group, a pioneer in low-cost housing, complains, “The government should sanction a

particular plan in 30 days and it should have a single window clearance instead of a prolonged and byzantine process. In Bangalore, it takes 33 months for a project to get clearance; by the time it gets the okay, land prices shoot up. Thus a builder is forced to make luxury apartments instead of affordable houses.”

Most builders agree that the only way affordable housing can be built is with public-private participation. They argue that for low cost housing they will have to be innovative and use low-cost construction material that is as good as any other material. As Gera puts it, “Affordable housing can be made by setting up 'special residential zones (SRZs)' with various exemptions, as in the case of SEZs. These SRZs should have small residential units below 60-70 sq. mtrs that can make large-scale affordable housing for the masses.”

“When a common man buys a house it costs him more than his hand and leg and he believes in God and good luck before investing his hard earned money. We need to have licensed brokers and more transparency to eliminate this suspicion. Anybody and everybody shouldn't be allowed to join the profession as I know of many crooks who have become brokers to earn extra bucks and fool innocent people. They are neither civil engineer nor do they possess any knowledge of land laws,” said Deepak Parekh, Executive Chairman, HDFC.

There have been numerous conferences and debates on affordable housing, but nothing concrete is happening on the ground. Builders blame the government and the government blames the builders; but ordinary folk can only look at the huge, enticing billboards and luxurious advertisements in newspapers and wonder if their dream of owning a modest house will ever come true. By all evidence available, it seems a case of possibility which can never happen.