India’s push for clarity drives foreign direct investment
India’s move towards clearer and more open foreign direct investment (FDI) regulations is helping to drive greater inflows of funds into the country, according to analysts.
India has long been associated with cumbersome bureaucratic procedures and regulations that have deterred foreign investors.
“The certainty and clarity in the FDI policy will go a long way in building confidence for investors and significantly enhance the ease of doing business in India,” says Mehfuz Mollah, an economist at Economic Laws Practice, based in Mumbai.
India in August launched its latest consolidated foreign direct investment (FDI) policy report, which is aimed at making the regulations governing various sectors clear to potential investors. This singalled that the government had liberalised the FDI rules for several sectors, including defence, construction and broadcasting.
“The recent consolidated report on its FDI policy is an example of the government’s aim to attract more investment,” says Rahul Pillai, the chief executive of Interem Relocations, based in Dubai and with operations in India. “Today [the fact that] more than 60 per cent of the sectors are open through an automatic route without any government approval is a good example of minimum government and maximum governance.”
Under Narendra Modi’s government, which came to power in 2014, attracting foreign investment has been high on agenda. This is because such flows are vital as the country – with a population of more than 1.2 billion, a large number of whom remain in poverty – requires high levels of economic growth, job creation and infrastructure development.
Mr Modi has conducted a number of overseas trips in a bid to woo investors, including high-profile visits to the United States, UAE and Japan.
Initiatives include “Make in India”, aimed at transforming the country into a global manufacturing hub, and scrapping the foreign investment promotion board during the budget this year, removing a layer of bureaucracy in gaining approvals for foreign investment.
“The Indian economy is going through a speedy reforms under the Modi government,” says Mr Pillai. “It has taken large amount of initiatives to attract more and more FDIs to India. The government has opened up or increased the cap of many sectors to the world to [attract backers to] come and invest in the Indian growth story.”
However, not all the evidence suggests that India is doing as well as many say. The World Bank’s ease of doing business rankings placed India at 130 out of 190 countries last year, up the listings by just one place on the year before. The government is said to have set itself the ambitious target of climbing to 90th place in the next survey, and to be in 30th place by 2020.