THE government is using its decision to allow foreign direct investment (FDI) from Bangladesh to push for speedy clearance to the Tata Group’s plans to invest about $3 billion in the neighbouring country. A notification has now been issued to allow FDI from Bangladesh through the Foreign Investment Promotion Board (FIPB) route, Jairam Ramesh, minister of state for commerce, said on Thursday.
Pakistan and Bangladesh were the only countries figuring in the FDI negative list of Fema. With the government allowing investment from Bangladesh, the only name in the negative list now is Pakistan.
Bangladesh has been sitting over the Tata Group’s plan to invest $3 billion in power, steel and fertiliser units in the neighbouring country. The government could not effectively push the case of the Tata Group since FDI from Bangladesh was not allowed till the recent notification was issued. “The Tata investment would be the single largest FDI in Bangladesh; more than all the FDI the country has received till now,” Mr Ramesh told ET. Sri Lanka also used to figure in the negative list of FEMA, but was taken off after the country entered into an free trade agreement (FTA) with India which is now being developed into a Comprehensive Economic Co-operation Agreement (CECA).
Prime Minister Manmohan Singh and external affairs minister Pranab Mukherjee fully backed the move to remove Bangladesh from the FEMA negative list, Mr Ramesh said. It will not be possible for India to lobby strongly for speedy clearance to the Tata proposals in Bangladesh. The minister of state for commerce had written to Mr Mukherjee last year, urging the government to allow FDI from Bangladesh.
“Investment is a two-way street. How can we push for permission to Indian investment in other countries if we do not permit them reciprocal market access,” Mr Ramesh wondered. The minister of state for commerce had flagged the issue during a meeting organised by the Indo-Bangladesh Chamber of Commerce & Industry in Dhaka last year. The efforts to allow investment from Bangladesh have borne fruit now.
Rather than the automatic route managed by the RBI, the government will subject all investment proposals from Bangladesh to FIPB scrutiny. This, officials feel, would take care of security considerations.
Mr Ramesh said the north-eastern region would benefit due to flow of investments from Bangladesh. Food processing, textiles, pharma and bamboo-based industries in the region could receive FDI from Bangladesh, he felt.
Neighbouring countries were running a huge trade deficit with India as they could not export much to India. In the case of Sri Lanka, for example, the deficit was as high as 10:1, Mr Ramesh said. After FDI from Lanka was allowed, Indian companies like IOC managed to tapped the island-nation’s emerging market. As a result, the trade deficit has now almost halved as imports have increased.
Allow FDI from Pakistan: Ramesh
Security considerations notwithstanding, Mr Jairam Ramesh, minister of state for commerce, India should not block FDI from Pakistan. “Pakistan should be removed from the FEMA negative list for FDI, paving the way for Indian companies to invest in the neighbouring country,” Mr Ramesh told ET. The comment adds a new twist to the plan to screen all FDI for security consideration. Interestingly, the comment comes at a time when the security apparatus is working on a comprehensive law to screen FDI on national security grounds