More reforms can speed up FDI flows into India: IMF

Washington: Further liberalisation aided by structural reforms could help deepen India's integration in global value chains and its post-pandemic recovery, the International Monetary Fund (IMF) said on Monday. Alfred Schipke, Director, IMF-STI Regional Training Institute and former IMF India Mission Chief said that despite the Covid-19 pandemic, India has attracted the highest amount of Foreign Direct Investment (FDI).

"Further efforts toward investment liberalisation aided by structural reforms could help deepen India's integration in global value chains and its post-pandemic recovery," Schipke told PTI in an interview.

In recent years, policies to further liberalise FDI in agriculture, defence, telecommunications services and the insurance sector have helped India to attract FDI, which has also improved the current account financing mix and helped contain external vulnerabilities, the official said. "Going forward, further progress could be made on the FDI liberalisation such as in the biotechnology, defence, digital media and pharmaceutical sectors," he said.

These efforts should be supported by structural reforms, including land reforms, labor reforms and reforms to reduce informality, and complemented by reforms to strengthen governance, the regulatory framework, and the rule of law, he noted. Schipke said that structural reforms should be complemented by reforms to strengthen governance, the regulatory framework, and the rule of law to foster transparency and safeguard public accountability. "Further efforts towards trade and investment liberalisation could help deepen integration in global value chains. These include lowering tariffs (customs duties) on intermediate goods which would strengthen backward linkages and lift the competitiveness of exports such as autos, chemicals, electronics, and industrial machinery. "The domestic production-linked incentive schemes and privatisation of enterprises in non-strategic sectors may also support greater FDI," he said. Noting that there have been substantial policy measures to alleviate the pressures on lives and livelihoods from the unprecedented pandemic shock, he said that Indian authorities have responded with fiscal policy, including scaled-up support to vulnerable groups, monetary policy easing and liquidity provision, and accommodative financial sector and regulatory policies. Despite the pandemic, the authorities have also continued to implement structural reforms.

As the world has painfully learned during the last one and half years, pandemic-related uncertainties remain elevated, and no one is safe until all are safe, he said. "Looking ahead, addressing the health crisis through a continued coordinated policy response to fight the virus, including through accelerating vaccinations, remains a priority for the world and India.