India Trails Asian Tigers In Fdi Despite More Liberal Policy

A study conducted in the wake of the controversy over Indias foreign direct investment (FDI) norms and the resultant threat from multinationals has established that Indias policies are more liberal than those of major South-East Asian competitors like China and Malaysia. However, the study emphasises that Indian policy falls short of competitors in wooing actual investments on several aspects.

The study, conducted by Federation of Indian Chambers of Commerce and Industry (Ficci) associate Indian Chamber of Commerce (ICC), examined the foreign investment norms in China, Indonesia, South Korea, Malaysia, Philippines, Taiwan and Thailand.

The findings indicate that Indias foreign investment guidelines compare favourably with major competitors like China and Malaysia, since India freely allows foreign majority ownership in a large number of manufacturing industries (and some service industries).

 

Apart from South Korea, no other country covered in the study gives automatic FDI approval. South Korea, however, has a foreign investment ceiling of 18 per cent. Malaysia does not allow more than 49 per cent foreign equity in non-export projects, while 100 per cent foreign equity is allowed only in those projects which export 80 per cent of their turnover.

Logically, therefore, India should have overtaken all these countries on the FDI front. The caveat, however is: foreign investors attach greater importance to the overall investment environment than to certain preferential policies.

Factors such as market size and growth, production costs, skill levels, political and economic stability and the legal framework remain the most important, says the study.

The lack of transparency in approvals, delays, regulations and bureaucratisation at the state government levels and frequent changes in policy have also compelled many multinationals to put India on their ``wait and watch lists, says the study.

India has also not been able to exploit its formidable cost advantage, says the study. Most of the areas in which cost advantages are significant, like food processing, have been reserved for small scale industries. As a result, foreign investment has not poured into these areas.

Indias FDI norms compare favourably with those of China and Malaysia

However, Indias investment environment lags behind South-East Asian rivals

The country has failed to capitalise on cost advantages

India also loses out because of high taxes and negligible promotion