Green laws blocking FDI flow, says RBI

Even as India's environment gets degraded to intolerable levels, the Reserve Bank of India has given fresh impetus to the dominant 'development at all costs' lobby by saying that environment-sensitive policies and procedural delays are hurting foreign direct investment.

In its report on macroeconomic and monetary developments in the third quarter of 2010-11 released on Monday ahead of today's interest rate hike, the RBI said that the moderation in FDI inflows during April-November 2010 was due to slower investment in sectors such as construction, mining and business services.

A major reason for the decline in FDI is environment-sensitive policies that have been manifested in recent episodes in the mining sector, integrated township projects, and the construction of ports, which appear to have affected investor sentiments, the RBI said.

The report adds that persistent procedural delays, land acquisition issues, and non-availability of quality infrastructure have added to the environment related issues. These factors, which are more structural in nature, if addressed expeditiously, could raise the share of India in the projected FDI flows to EMEs in the near future, the central bank said.

It added that while the subdued growth of services receipts is cyclical and can be expected to get resolved with global recovery becoming more broad-based and robust, the rise in crude oil prices and reasons for moderation in FDI are more structural in nature.

Since supply of crude oil is relatively inelastic, the economy needs to adjust itself in the medium-term by investing in the use of non-conventional sources of energy, it suggested. As regards FDI flows, the reform process needs to be expedited to address the impediments, it said.

(See: Ramesh asks industry to understand environment compulsions)