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Destination India By Sukomal C Basu, CMD, Bank of Maharashtra

India is the fourth largest economy in the world and has the second largest GDP among developing countries, in purchasing power parity terms. It is experiencing growth with macro economic stability and is in the process of integrating with the global economy.  Far-reaching economic reforms initiated in July 1991 generated numerous business opportunities, leading to degeneration with removal of most licensing procedures.  Today most sectors are open to foreign investment, and a government commitment to further opening of the foreign goods, services and investments.  This step aims at rapid and substantial economic growth.

Factors responsible for attracting global companies to India:
Atmosphere conducive for business:  India constitutes a potentiality massive market for goods, services and technology of all kinds.  It offers significant opportunities for trade and investment.  The country has a fast growing middle class with substantial purchasing power and a long established legal and accounting system; independent judiciary and a strong tradition of entrepreneurship.  The use of English is wide spread in business and commerce.  India ranks high in areas such as qualifications, capabilities, quality of work, and work ethics and thus is ahead of competitors such as China. Philippines, Ireland, Australia and Canada etc.

Maturing of the Indian consumer: Indian consumers have become more demanding in seeking products that are suited to their needs.

World-class human resources: India has made and attracted investments in the development of institutions for learning that prepare professionals for leading edge thinking in the globally competitive market place.

Leadership in technology innovation: Individuals of Indian origins have been at the forefront of innovation technology.  As a result, non-resident Indians are now making investments in infrastructure and knowledge development in India.

Multifaceted financial sector:  India has a multifaceted financial sector with an extensive banking network and a well developed capital market. Several leading international banks operate in India.  Foreign investors can raise financial resources in the domestic market from commercial banks and the capital markets.

Infrastructure:  There are enormous requirements for power, telecommunications, roads and highways, oil and natural gas and port facilities in the infrastructure sector.  Several special packages and incentive scheme introduced under this sector provide exciting opportunities to foreign investors.

Improvement needed:
Inequality exists among the rural and urban population in terms of the earnings per capita, among the bigger organizations and the SMEs to capture customers, projects and market to share; among the agricultural and industrial sectors with regard to capital investment and technology utilization for development and among various states themselves in terms of investment climate (infrastructure, government bureaucracy and labour).  These needed to be bridge before India can benefit from the opportunities offered by a globalized economy or the WTO.
Slow infrastructure development, containing red-tapism and problems foreign companies face when dealing with various government departments as the major hindrance for lack of further investments into the country.

Areas in which business opportunities are available:
India welcomes foreign investors with open arms with relatively few and specified exceptions.  The key sectors where such prospects are available are:  Information Technology, Telecommunications, Transportation, Insurance and Financial services, Chemical, Petrochemical, Agriculture and food products, Oil and Gas Housing and constructions, Mining, Metals and minerals, Environment, Power and energy and Films etc.

Present scenario:
The process of economic reforms has made the Indian policies concentrate on attracting capital from abroad and making India a global industrial base. The resultant inflows of foreign direct investment and technology transfers have created an atmosphere for dynamic growth and increased competitiveness of Indian industry.  Several multinationals have established their presence in the Indian market.  While some of foreign companies have established operations in the country on their own, others have successfully teamed up with local companies and leveraged their presence in the country.  Earlier, a more distinct multinational presence in non-core sectors such as consumer goods, intermediates and services was observed, primarily because the core sectors were reserved for the public sector.  At present, foreign investment is being encouraged in the core sectors such as basic infrastructure.  This has led to the entry of a large number of foreign investors in various sectors of Indian market, which include Fortune 500 companies, as well as small and medium enterprises (SMEs) from all over the world.

Several organizations in India are there to support foreign players team up with Indian partners.  These include the Confederation of Indian Industries (CII), federation of Indian Chambers of Commerce and Industry (FICCI), and several consulting firms.  These organizations help the foreign investors to undertake viability studies of the projects and draw the entry strategies.  Indian embassies abroad closely assist foreign investors in their initiative to participate in infrastructure projects in India.

The foreign industrial investors are very sensitive to the political happenings in the country.  In the month of 2002, when there was an attack from Pakistani militants over the Kashmir issue, foreign industrial investors withdrew an estimated $48 million out of the Bombay Stock Exchange.  The Software Industry experienced the heat too, with visits of foreign clients being canceled.  The garment export industry, which was also, hit very badly fears loss of business in seasons ahead.

Comparison with other countries:
China: It is the biggest challenge in the future and the largest threat to India. It has a lower manpower cost with higher productivity. The Chinese workers cost about 15% less than equally qualified Indians. The cost of real estate and power are also extremely low in China. The U.S. companies find this very attractive as they are looking for cost cutting due to the downturn.

Philippines: Labour is not very cheap in the country. But as a former American colony, the country is appealing to American firms. The country has improved telecom and office infrastructure to score over India. In addition to China and Philippines, India’s other main competitors are Taiwan, Brazil and Malaysia.

Role of Government:
In pursuance of the government’s commitment for early implementation of the second phase of economic reforms and with a view to further unshackling Indian Industry from the rigorous of approvals and controls, the Government has allowed FDI on an automatic basis except in respect of a small negative list.

Indian’s economic policies are designed to attract significant capital inflows into India on a sustained basis and to encourage technology collaboration between India and foreign firms. Policy initiatives taken over in the last few years have resulted in significant inflows of foreign investment in diverse areas of the economy. India welcomes direct foreign investment in virtually every sector, expect those of strategic concerns such as defence, railway transport and atomic energy and where the existing and notified sectoral policy does not permit foreign direct investment (FDI) beyond a certain ceiling.

The government has set up a Foreign Investment Implementation Authority (FIIA) in the Ministry of Commerce and Industry for providing a single window to foreign investor to facilitate quick translation of foreign investment approvals. Procedures are being simplified and streamlined to facilitate business.

Foreign Investment Promotion Board (FIPB) specially empowered board chaired by the Secretary, Department of Industrial Policy and Promotion, has been set up specifically for expediting the approval process for foreign investment proposals.

In order to encourage exports, the Government of India offers special incentives to investors setting up units to manufacture goods for exports. Such units may be set up in Export Processing Zones (EPZ) or may be 100% Export Oriented Units outside EPZs. The EPZs are designed to provide an internationally competitive duty free environment at low cost for export production.

The Exim Policy has promised a slew of benefits for the special economic zones, including setting up offshore banking units.

Agenda for the future:

The physical infrastructure needs improvement on an urgent basis. Foreign direct investment is very sensitive to efficacy of physical infrastructure. It is not enough to present merely cheap labour and tax incentives as the major plank for attracting direct investment if these are offset by poor i.e. poor roads, congested ports, erratic water and power supply etc.
The urban infrastructure also requires massive upgrading. If India wants to become a globally preferred hub for outsourcing services, good roads, great highways, gleaming airports, grand skyscrapers are needed to assure the investor that his choice of business destination is appropriate.
Tax system be further simplified. Reduction in customs duties, rationalization of excise duties along with reforms in labour policies are also needed.
More schemes to attract foreign and private investment in infrastructure sectors be introduced.
Full rupee convertibility be brought in.
The Indian industry needs to be buoyed further with amplified reforms in agriculture.

India holds a lot of promise as a business destination. It is not only a market for today but increasingly so for the future. The huge market potential together with the existing pool of human resources and the wide variety of resources in the country make India indeed the business destination in the years to come. With the ongoing liberalization the inflow of FDIs in India is increasing. In the year 2001-02, it reached the level of $4.06 billion as against $2.46 billion in the year 2000-01. With the faster move towards full convertibility of rupee, the norms are expected to ease out further. FDI growth in India is poised for a bigger leap in years to come.

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