Saturday 16 February 2019
India’s structural reforms paying off
Recent initiatives such as Make in India and the introduction of the Goods and Services Tax are already improving the business environment and making the country more attractive to investors.
Major structural reforms have taken place in India over the past year, including the introduction of the Goods and Services Tax (GST), a relaxation of foreign direct investment (FDI) rules and the dissolution of the Foreign Investment Promotion Board (FIPB).
These changes are aimed at making it easier to do business in India, complementing the Make in India initiative. Accordingly, in Financial Year (FY) 2016/17, there was a corresponding rise of nearly 10% in FDI to US$43.5bn compared to US$40bn in FY 2015/16.
Approximately 90% to 95% of all FDI proposals are now permitted through the automatic route and do not require the Government’s approval. All FDI proposals requiring Government approval previously had to be channeled through the FIPB, which acted as the gatekeeper for foreign investments into the country. Investment proposals in 11 sectors, including telecoms, broadcasting, civil aviation, defence, retail and private sector banking, must now be approved by the relevant ministry instead.
Make in India
The Union Cabinet, the body responsible for macro-economic decision-making in India, has approved a policy that gives preference to Make in India in Government procurements. The new policy will give a substantial boost to domestic manufacturing and service providers, helping to create employment. Another crucial effect is the increased flow of capital and technology into domestic manufacturing and services, which is expected to attract investment into these sectors.
The Make in India initiative continues to be a cornerstone of the Government’s investment promotion strategy and has helped improve the investment climate of the country. Make in India has acted as a platform to promote these investment activities and highlight both the achievements and the potential of each sector.
Achievements in many sectors of the economy over the past two years, including growth in FDI, new policy initiatives, fiscal incentives, infrastructure developments, ease of doing business reforms, skills initiatives, innovation and R&D projects, have been widely recognised around the world.
For the first time, India now features among the top countries in terms of investment attractiveness and policy reform (according to the Ministry of Commerce and Industry). The country also features among the top three prospective FDI destinations for multinational enterprises in 2017 to 2019 according to UNCTAD (United Nations Conference on Trade and Development).
These reforms and the decision to dismantle the FIPB are expected to continue to boost India’s FDI landscape. There are a number of other key decisions still to be made by the Union Cabinet, which may open investment opportunities in previously restricted sectors such as the plan to issue a standard operating procedure, which ensures that the government will clear all FDI proposals requiring approval within ten weeks after the receipt of an application.
At the same time, other factors such as an increase in literacy and a relatively young and large workforce are serving to enhance the country’s reputation as a place to do business. If the Government continues to adopt positive structural reforms and tackle the challenges of excessive bureaucracy India will become an even more attractive and lucrative destination for investors.
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