"No" to Tata-SIA may affect FDI: Sachs

The paper by the Harvard Institute for International Development (HIID) says high corporate tax and tariff rates by international standards is a major disincentive to foreign corporate investment in India.

Corporate tax rates in East Asia are generally in the range of 15-30 per cent compared to 48 per cent for foreign companies in India and for local companies 35 per cent.

According to the paper, prepared by Prof Sachs and Nirupam Bajpai, tariff rates in India are still among the highest in the world and continue to block its attractivness as an export platform for labour-intensive manufacturing.

The much-publicised Tata-SIA proposal to operate in the domestic skies was shot down by the Civil Aviation Ministry in March following the new civil aviation policy that does not permit foreign airlines to hold 40 per cent equity in joint venture airlines in the domestic sector.

The Foreign Investment Promotion Board and the industry ministry had cleared the Tata-SIA proposal in December last saying proposals of such magnitude should not be stopped.

While the Union cabinet had then deferred the decision in the light of the new Civil Aviation Policy, Prime Minister I K Gujral had expressed displeasure at the lack of "open sky" policy during his recent Nepal visit.

Sachs says in the paper that the FDI regime in India is still quite restrictive and requires a long procedure of government approvals for ownership between 51 per cent and 100 per cent equity.

The paper, focussing on issues and problems associated with India’s current FDI regime, says though FDI flow has been increasing every year, it was much below required levels and the potential that the country had in terms of attracting such flows.

Since the initiation of the country’s economic reforms in 1991, FDI approvals have been $ 29,608 million while the actual inflows till September last $ 5,690, accounting for only 19 per cent of the approvals.

Formulating clear and transparent sectoral policies for FDI and making easy availability of land, power, water and the like to the foreign investors will go a long way in realising much higher level of actual flows, Sachs says.

Emphasising on continuation of reforms, he said this is critical if India is to attract a far greater number of investors and to realise the government’s target.