Nikita Singla

Consultant . International Affairs. Sciences Po Paris. Engineer. IIT Delhi. Solo Backpacker. Yoga Trainer

India – A level playing field for investment?

Today, when India has made a comeback on the potential investment destination list for countries around the globe, it is vital to sustain growth for a market of this size and potential. Investment activities in India are no longer governed by the national policies or by the objective of attaining balanced regional development. Instead, investment decisions are now made on economic considerations, speculating the returns that investors expect and the risk assessment of those returns. Despite the vast potential, India seems to have been underperforming for quite some time now. While the recent slowdown can be partly attributed to external causes, domestic disparity between Indian states cannot be ignored. Thus, market oriented macro and trade policies at the national level need to be complemented with policies that foster a uniform and settled investor friendly environment at the state level.

Though the national policy initiatives apply equally to all the Indian states, their effects can differ considerably, depending up on the nature of various institutional factors and policies in the respective states. Seeing the foreign investments acclaimed in India, it is clear that success requires a long-term planning horizon and a state-by-state strategy to adapt to the complexity and diversity of India’s market. The concept of looking at state level policies is not just déjà vu, but also well debated and discussed for years. The challenge lies in doing the right thing at the right time, when Indian polity is turning around at 180 degrees.

As foreign investors start looking at Indian states, they struggle with not only the differential policies between any set of adjoining states but also some major impediments within the states. Some states have not been able to develop the administrative and taxation institutions to raise resources, or when they do obtain resources, they do not have the governance capacity to use them well. The areas of concern for investors range from complex and lengthy investment and business approval processes, entry route barriers, antiquated labour laws, complex land acquisition norms, absence of long-term policies, poor implementation of stated policies and multiplicity of implementation authorities.

Apart from the technical gaps, bureaucratic delays, discretionary interpretation, long lived corruption and nepotism, centre-state divergence on investment related policies scourge further. Even for the simplest case of getting a new power connection or a new telephone connection, the time taken varies considerably from state to state, to vex the investor enough. Nevertheless, companies have found ways to succeed in this difficult business environment and at the same time, states have taken a step to work around their state policies to be in tune with the international standards.

Best practices within India such as Single Window Clearance System in Gujarat have set examples to do a close examination of policies and regulations for investment into Indian states. When executing a project in India, it is necessary to know the approval mechanism and requirement of the regulatory authorities, work visa, tax filling requirement, process and procedure of claiming local incentives, appropriate structuring of contract, and implications of forming a joint venture etc. Direct interactions need to be held with industry bodies, associations, chambers of commerce and business delegations, thereafter policy interventions should be discussed with Ministries at the Centre and State level for adoption and implementation.

Thus, with formation of new policies and reforms in old policies, it is imperative to develop a comprehensive and holistic investment guide at sector and provincial level for facilitating foreign business in India, detailing the business opportunities and regulatory environment at a segregated level i.e. Centre, State, Industrial zones, SEZs among others.

Let alone future generations, India’s commitments to its current citizens to offer expanded opportunities, through the flow of foreign investment into India, will ensure the emergence of the right mix of policy and regulation sooner, rather than later. Let’s put the spokes in the wheel and turn it around.

Published in South Asia Journal

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This entry was posted on December 29, 2014 by in Writings on international affairs and economics.

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