No special incentive was proposed to woo the foreign investors. Given the global perspectives of foreign investment, raising the FDI cap on insurance and defence from 26 per cent to 49 per cent, cannot be reckoned as the major incentives to attract foreign investment. At present, FDI initiative is bogged down by restrictive policies of land acquisition and multiple clearances required at Centre and State level. Against the high hope for scrapping the retrospective tax, budget escalated fear for gridlock to retrospective taxes. Silence on GAAR rules sparked alarm since they included stricter rules on foreign investment from countries, with whom India has double taxation treaty. None of these issues were addressed in Finance Minister’ speech pertaining to reforms or dispel the fears.

Land acquisition has become a gruesome procedures under the new Land Acquisition Act. It takes five years to acquire a land as compared to three years in the earlier system. Under the new provisions, mandatory obligations of 80 per cent farmer’s consent, paying out for land four times more than normal value in rural areas and two times more in urban areas, were seen harder than previous policies. Besides, rehabilitation and resettlement of the farmers are additional burdens of the buyers of the land. These hard regulations deterred investor’s interests and delayed a number of major investment projects like power and major manufacturing projects.

Given the current global perspectives of FDI, which has been triggered by the merger and acquisition after Lehman shock, retrospective tax issues should have been addressed with a clear vision. Instead, Finance Minister’s assertiveness on “The Sovereign Right of The Government “and his silence on the pending cases of retrospective tax disputes in the Budget Speech wobbled the foreign investors’ confidence. This went counter to Mr Modi’s success of Vibrant Gujarat, which attracted foreign investment in Gujarat.

Unlike in Gujarat and Tamil Nadu , no single window clearance or FDI facilitation centre was proposed for the foreign investors at the central level. In Gujarat, INDEXTb and in Tamil Nadu, Tamil Nadu Guidance Bureau act as the single window advisory body to the foreign investors. This helped foreign investors to avoid from running from pillar to post for multiple clearances.

An analysis of China’s incentives to foreign investors should be a lesson for Modi government. His message of minimum government, maximum governance impressed the foreign investors. But, this alone cannot serve the purpose unless substantial windfalls are offered to allure the foreign investors.

In this budget, much hopes were laid on withdrawal of Minimum Alternative Tax in special economic zones. In 2012-13, Minimum Alternative Tax was re-imposed in SEZ under UPA and it was proposed to do away with tax holiday with the introduction of Direct Tax Code. Finance Minster’s silence on MAT might have decimated the foreign investors interest to invest in SEZ.

In contrary, in China special income tax benefit are given to foreign investors in special economic zones and the foreign manufacturers who bring high tech products in domestic tariff area. In China, the foreign investors, who bring advance technology, enjoy tax holiday for two years and are permitted 50 per cent tax exemption for next six years in the domestic tariff area. In India no such tax incentive is available to the foreign investors. In China, foreign investors, who reinvest their profits after operating for 5 years, are entitled to special incentive for refund of 40 percent of their tax paid on the reinvested fund. In India, no incentive is given to the foreign investors for their reinvestment of profits.

On indirect tax, China grants several incentives. Technology Transfer and Technology Development are exempt from value added tax (VAT). Equipment imported for projects in the priority sector are exempt from tariff and import stage VAT.

The budget proposed relaxation in FDI policy to promote smart cities for neo-middle class people. The budget said that Prime Minster has vision to set up 100 smart cities. It reduced mandatory obligations for construction of development projects - from minimum 50 thousand square feet to 20,000 square feet and from minimum capitalization of US $ 10 million to US $ 5 million. No relaxation was proposed in the mandatory obligation for minimum service area for housing plots, which is 10 hectares. While keeping in view the housing needs of the country, these relaxations were tip of the iceberg

The country is in dire needs for affordable pacca houses for poor and lower middle class. According to Census 2011, only 48.1 per cent of houses has walls of burn brick, 29.6 per cent has concrete roofing and 32.2 per cent has floor of cements. In other words, less than 30 per cent of houses are pacca in the country. Today, it is the era of pre-fabricated material for low cost housing. Relaxation in the FDI policy in the service area for housing plots, which has a harder rider of 10 hectares, would have proved boon to the foreign investors.

After a drastic drop in world outward FDI in 2012 (- 21.3 per cent), the world witnessed revival in the growth in 2013, though marginally (+ 4.8 per cent). The main drivers for the growth were East and South East Asia countries. Among them, Japan, China and Singapore were the main boosters of outward FDI. In India, Japan and Singapore are among the top four foreign investing countries. Both these countries accounted for 20 per cent of total FDI in India since 2000. Given the turnaround in the global outward FDI, Modi’s budget would have proven a glee to foreign investors, had the budget contained reforms.

FDI in China, the hotbed for foreign investors, is losing its sheen after Lehman shock and the continuous USA pressure to appreciate the renminbi value. The attraction of low wage era in China has evaporated. Minimum wages surged by over 30 to 35 per cent. China’s workforce is getting older in a few years of time. Chinese dependency ratio on working – age class (between 15-64 age) has declined to 30 per cent, following one-child policy. In this perspective, India can be bet for next destination for foreign investment.

It is paradoxical that while as Chief Minister, Mr Modi proved echelon for pro-FDI, his first budget as Prime Minster disappointed the foreign investors. UNTACD in its World Investment Report 2014, forecasted a continuous growth in world outward FDI in the next three years. It is imperative that Modi government should prop up the reforms and made India as the next generation hot bed for FDI to bolster the manufacturing base in the world. (IPA Service)