FDI better than FII for boosting growth, says Arvind Mayaram

Finance Secretary Arvind Mayaram has said India would prefer the foreign direct investment (FDI) route to foreign institutional investment (FII) in stock markets for overseas resources required to spur economic growth.

"I believe our potential growth rate is 8 per cent. And to get there, we need to develop resources. And that which we cannot generate domestically must come from outside and if it comes from outside, then we prefer it in the form of FDI rather than FII," Mayaram said at an event on Tuesday.

FDI flow is considered more stable as it is a long-term investment by corporates generating jobs and income in the country.

FII inflow into the stock market, although helps stabilise the rupee, is considered hot money that can leave suddenly. This tends to have a destabilsing effect on the currency and the economy.

Mayaram emphasised the need to bring India back on the growth path to attract investment.

"You must remember that investment doesn't come because of agreements like Bilateral Investment Promotion and Protection Agreements. Investment comes if there are opportunities to make profits. Opportunity to make profits can only happen when growth is higher and when the economy becomes robust," he said.

Foreign investment is considered crucial for India, which needs an estimated $1 trillion in the five-year period ending March 2017 to overhaul infrastructure such as ports, airports and highways to boost growth.

India's GDP expanded 4.5 per cent in 2012-13, the slowest pace in the past decade, and at 4.7 per cent in 2013-14 making it two years of sub-5-per cent growth.

The Reserve Bank of India this month retained its GDP growth forecast of 5-to-6 per cent for 2014-15.

In association with Mail Today