Despite the Stock Market meltdown,
India projected a USD 12B Foreign
Direct Investment (FDI) this year and
reported a year on year 27% rise in
merchandise exports and USD 20.52% in
imports.
Oil makes up 33% of Indian imports
which grew at 34.65%. Non-oil imports
grew at 14.56%. The trade deficit also
grew by 9% but when oil is taken out
of the equation, the trade deficit
figure drops to an inconsequential
number. India is an energy deficient
county and it needs to import more oil
and natural gas to fund its economic
growth. Unless the inflow, exports,
and capacity to raise money such as
debt, disinvestment, and increased
taxes goes up, the absolute deficit
will grow exponentially.
Despite recent stock market melt
downs, India is setting itself an
aggressive target of USD 12 billion
this year or a 42% rise from last
years USD 8.4 billion. Revealing the
project, Department of Industrial
Policy Promotion Secretary Ajay Dua
said that he expects USD 8 billion to
come as equity investments and the
rest for reinvested earnings and
capital inflows and predicted that
countries like Japan, Taiwan, and
South Korea would invest in India.
However, the US and the European Union
(especially The Netherlands) will
invest most.
Dua also indicated process
modification that would facilitate
easier investment such as an
electronic form submission process
that would be ready by March 2007 to
cut down human interface time. Also,
the Comprehensive Economic Cooperation
Agreement with Singapore was also
expected to bring a large FDI through
that country. Currently, 35% of
investments are routed through
Mauritius because India has a
double-taxation avoidance treaty with
that country. However, he was
insistent that FDI in retail will not
be allowed since that could displace
traditional shopkeepers.
The sudden decline in the stock market
caused steep fall in the Rupee.
However, a JP Morgan report said that
compared to other emerging markets and
currencies, the Indian Rupee held up
well. In fact, its volatility was only
second least after the Government
controlled Chinese Yuan. Some
currencies such as the Brazilian Real
and Turkish Lira have depreciated by
over 10% since May 12, 2006.