Investment Policy of India

8/6/2019 Investment Policy of India

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INVESTMENT POLICY OF INDIA

INTRODUCTION

India continued with its receptive attitude towards FDI for about a decade after it gainedindependence in 1947. This was on account of limited domestic base of created assets viz.,

technology, skills and entrepreneurship. During this period foreign investors were assured of free

remittances of profits and dividends, fair compensation in the event of acquisition, and were

promised national treatment. However, the second five-year plan (1956-61) made a significant

departure by emphasizing self-reliant economic development and adopting a restrictive attitude

towards FDI in order to protect the domestic base of created assets. Further in 1973, the Foreign

Exchange Regulation Act (FERA) came into force which prescribed a ceiling of 40% in equity by

foreigners in Indian companies. This resulted in many foreign companies leaving India in the late

1970s. However, there was a reversal in the policy stance during 1980s. The liberalization of

industrial and trade policies during this decade was accompanied by an increasingly receptive

attitude towards FDI and foreign collaborations. In order to modernize the Indian industry greater

role was sought to be given to trans-national corporations (TNCs). Further, exceptions from the

general ceiling of 40 percent on foreign equity were allowed on the merits of individual investment

proposals. Riding on the wave of reforms, full-scale liberalization measures were initiated in 1990s

with a view to integrating the Indian economy with the world economy. The policy allowed

automatic approval system for priority industries by the Reserve Bank of India. For the purpose of

granting automatic approval three slabs of foreign ownerships were defined viz., up to 50% up to

51% and up to 74%. Albeit such limits were relaxed year after year. For instance, in some sectors,

up to 100 percent foreign investment on automatic basis is allowed now. Foreign Investment

Promotion Board (FIPB) was set up to process applications for cases not covered by automatic

approval. Replacement of FERA by Foreign Exchange Management. Act (FEMA) removedshareholding and business restrictions on TNCs. Further policies relating to foreign technology

purchase and licensing were liberalized to improve access to foreign technology. Finally, outward

investments by Indian enterprises were liberalized and proposals satisfying certain specified

norms were given automatic approval. These changes in national FDI policies were complemented

by bilateral investment treaties (BITs) and double taxation avoidance treaties (DTATs), many of

which have been signed by India in recent years. Foreign investment started pouring in after India

launched its liberalization programmed in 1991. However, Indias performance in terms of

attracting foreign investment has not been very encouraging. Indias inward FDI stock as a

percentage of GDP in 2001 stood at 4.7, one of the lowest in the world. The factors that determine

location decision of the TNCs, which make most of FDI may be tax structure, special programmeand schemes, competition regime, entry and establishment requirements, investment protection,

technology transfer, natural resources and skill levels, incentives and institutional mechanism.

However, what actually determines the flow of FDI (and how) is quite a complex issue. For example,

on most of these accounts, India may look to be more attractive than China, but fails to attract even

one-tenth of FDI inflows that China receives.Since the 1980s, a consensus has been growing, evenamong the developing countries, that the net result of foreign direct investment (FDI) can be

positive. The phenomenal drop in total Overseas Development Assistance (ODA) in the 1990s has


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also forced most of the countries to increasingly look at FDI as an alternative source for financing

development. It is considered to be a better option compared to bank credit, because of high and

variable interest rates, and portfolio investment, which carries its own risks. It is also being

considered as the principal channel for the transfer of long-term private capital, technology and

managerial knowhow, as well as a link between national economies and the world market. The

importance of FDI in development has dramatically increased in recent years. FDI is nowconsidered to be an instrument through which economies are getting integrated at the level of

production into the global economy by accessing a package of assets, which include capital,

technology, managerial capacities and skills, and foreign markets. It also stimulates technological

capacity building for production, innovation and entrepreneurship within the larger domestic

economy through catalyzing backward and forward linkages. The trade effects of FDI depend on

whether it is undertaken to gain access to natural resources or consumer markets, or whether FDI

is aimed at exploiting vocational comparative advantage and other strategic assets such as research

and development capabilities By its very nature, FDI brings into the recipient economy resources

that are only imperfectly tradable in markets, especially technology, management know-how,

skilled labor, access to international production networks, access to major markets and establishedbrand names. In addition, FDI can make a contribution to growth in a more traditional manner, by

raising the investment rate and expanding the stock of capital in the host economy. It has thus been

widely recognized by governments that FDI could play a key role in the economic growth and

development process. Glancing back at the pages of history, India, if not completely hostile, was not

very receptive to foreign private capital. Long cherished dreams of the nationalists to build strong

home-grown champions and apprehensions about FDI eroding sovereignty and culture dominated

Indian economic scenario. Today, such fears look vastly overblown, and the Indian policymakers

openly welcome FDI.


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BRIEF OVERVIEW OF MACROECONOMIC CONTEXT

MarketSizeandGrowth

In terms of the overall market size of the economy (as measured by GDP at current market prices),

Indias GDP was around US$510bn in 2000-

01.A cursory look at Table 1 illustrates that the growth rate of both GDP and industrialproduction shows a decline to very moderate levels in the late 1990s after a brief spurt in

the mid-1990s. There has been a debate among economists centring on the growth

performance of the economy in the post reform period. While the more popular view is that

growth has accelerated after the implementation of the reforms package, Nagaraj (2000),

after a more robust statistical analysis of growth rates of GDP and its various components

using data for 1980-2000 argues that there is no significant increase in the trend rate of

growth of GDP in the 1990s. According to this estimate, the average growth rate during

1980-81 to 1999-2000 was 5.7 percent while the same during 1980-81 to 1990-91 was 5.6percent. In fact, a statistically significant decline in the secondary sector can be identified

over the last decade, i.e. post reforms.

Growth Rate of GDP and Industrial Production in India (in percent)

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01GDP growth 6.2 7.8 7.2 7.8 4.8 6.6 6.4 5.2Growth in IIP* 6 8.4 12.7 6.1 6.6 4.1 6.7 5.1

Table-1

RatesofInterestandInflation

Table 2 shows the movement of nominal interest rates of scheduled commercial banks in India over

the 1990s. Over the 1980s, interest rates were regulated, the prime lending rate (PLR) of State Bank

of India (the largest scheduled commercial bank) being pegged at about 16 percent and that of

Industrial Development Bank of India (IDBI, which is a term lending institution; also called a

financial institution, FI) pegged at 14 percent. Domestic interest rates were raised sharply in mid-

1991, as a result of the monetary contraction that was part of the International Monetary Fund

(IMF) style stabilization package. Mid-1992 onwards, however, interest rates were slowly brought

down to lower levels, the declining trend continuing till date. Since October 1994, banks were

allowed freedom to set their own lending rates for most categories of advances. As a result,

different banks started announcing different lending rates according to their own business

judgments so data for the later period shows the range within which PLRs of the five largest

scheduled commercial banks in the country varied.

As the data in Table 2 show, the declining trend in nominal interest rates

was reversed in early 1995.


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Domestic Prime Lending Rates (% per annum)

Year Average interest rates

1990-91 16.5

1991-92 16.51992-93 19.01993-94 19.01994-95 15.01995-96 16.51996-97 14.51997-98 14.01998-99 13.01999-00 12.02000-01 11.92001-02 11.52002-03 11.3

Table-2

It is worth mentioning here that banks could set their lending rates freely from October 1994, and

this rise in interest rates was, perhaps, a reflection of banks strategy. This was mainly because

recovery in industrial growth in 1994-95 and 1995-96 resulted in rising demand for credit from

industry from around early 1995. Though Reserve Bank of India (RBI), in general, has tried to bring

down the interest rate structure, its efforts were circumvented every time due to depreciation in

the foreign exchange market forcing it to raise short-term domestic interest rates (in order to

encourage inflow of foreign exchange through banking channels as well as from

exporters/importers).

RatesofInflation

Of course, it is real rather than nominal interest rates that are of importance as far as economic

activity is concerned. Table 3 shows different measures of inflation in the economy through the

1990s. Figure 1 plots the trends in movement of real interest rates using the average annual

changes of price of manufactured goods to derive the real rates. As shown in figure 1, real interest

rates remained high, at more than 8 percent, through most of the 1990s - except for a brief period

in 1994-95, when real rates declined to about 4-6 percent. So, the decline in nominal rates in the

latter half of the 1990s was not accompanied by a decline in real rates as inflation rates especiallythat for manufactured goods fell sharply during that period.


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Domestic Inflation Rates

All commodities Manufactured productsPoint to point Average Point to point Average

1990-91 12.1 10.3 8.9 8.41991-92 13.6 13.7 12.6 11.31992-93 7.0 10.0 7.9 10.91993-94 10.8 8.3 9.9 7.81994-95 10.4 10.9 10.7 10.51995-96 5.0 7.8 5.0 9.11996-97 6.9 6.4 4.9 4.11997-98 5.3 4.8 4.0 4.11998-99 4.8 6.9 3.7 4.51999-2000 6.5 3.3 2.4 2.72000-2001 4.9 7.2 3.8 3.12001-02 1.5 3.6 0.5 1.92002-03 6.5 3.4 5.4 2.6

The high real rates of interest prevailing in the domestic economy creates a cost of capital

disadvantage for domestic enterprises, vis--vis their foreign competitors, headquartered in

economies with lower interest rates, which can translate into a strategic disadvantage as well.

Domestic business groups and chambers of commerce have, in fact, been complaining about the

high cost of capital that they are facing over the last decade.

InvestmentInflow(1991-2001)

After the liberalization of capital controls in 1991, there has been a substantial increase in the

inflow of foreign investments into India. Table 4 gives the year-wise break-up of foreign investmentinflows. Though liberalization in the foreign investment regime for direct investment occurred in

July 1991 and for portfolio investment in September 1992, foreign investment inflows picked up in

earnest only from the last quarter of 1993. As Table 4 indicates, FDI as percent of GDP has

increased significantly in the last decade.However, portfolio investment did not show a consistenttrend after 1995 and even touched a negative figure in 1998 and then again started increasing in

1999-2000 followed by marginal decline in 2000-2001. Movement in direct investment flow

reflected considerable rise from US$6mn in 1990-91 to US$4784mn in 1997-98, but beyond 1998

there came a brief period of downtrend. But soon resurgence came with a rise in FDI to US$5102 in

2008-09

Table-4 Total Foreign Investment Inflows over the 1990s in US$mn

90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01Direct Investment - - 280 403 872 1419 2058 2956 2000 1581 2342Portfolio Inv 6 4 244 3567 3824 2748 3312 1828 -61 3026 2760Total 6 4 524 3970 4696 4167 5370 4784 1939 4607 5102FDI as % of GDP 0.03 0.05 0.14 0.21 0.41 0.60 0.73 0.87 0.59 0.48 0.49FDI as % of GDI 0.12 0.21 0.55 0.93 1.57 2.25 2.99 3.47 2.56 2.05 2.08

Table-4


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It must be mentioned that the definition of FDI and computation of FDI statistics used by Reserve

Bank of India (RBI) does not conform to the guidelines of the IMF. Some of the main discrepancies

are that India excludes reinvested earnings in its estimate of actual FDI inflows. It does not include

the proceeds of the foreign equity listings and foreign subordinated loans to domestic subsidiaries

which, according to IMF guidelines, are part of inter-company loans (long- and short-term net loans

from the parents to the subsidiary) and which should be a part of FDI inflows. India also excludesoverseas commercial borrowings, whereas according to IMF guidelines financial leasing, trade

credits, grants, bonds, etc should be included in FDI estimates.

Component-wise revised FDI data (in US$mn)

Year Equity Reinvested Other FDI Inflows toIndia FDI Inflows to India DifferenceEarnings Capital Revised Data Current Data

2000-01 2400 1350 279 4029 2342 16872001-02 4095 1646 390 6131 3905 22262002-03 2700 1498 462 4660 2574 2086

Recently, the government has reorganized FDI data for 2000-01, 2001-02, and 2002-03 along the

lines recommended by the IMF, to include some uncaptured elements of capital, to end under-

reporting of FDI.3 The new formula would include control premiums, non-competition fees, and

reinvested earnings and interoperate borrowings as FDI.

ApprovedandActualInflowsofFDI

After the liberalization of entry norms for foreign investors in India in 1991, FDI flows into the

economy have increased, especially in comparison to the levels of inflow experienced prior to 1991.

Table 5 summarizes the industry-wise distribution of foreign collaboration approvals granted over

the 1990s (between August 1991 and August 2001). The total approved amount of FDI in theseproposals was US$56.5bn.


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industries accounted for about 70 percent of the approved FDI amount, signifying that FDI inflow

has remained confined/concentrated within a few industrial sectors. Table 7 shows the sectoral

distribution of FDI. Until the early 1990s, FDI was heavily concentrated in manufacturing.

Following 1991 liberalization programme, however, there has been a sharp rise in approved

foreign investment in tertiary sector that encompasses critical elements of the modern economy

namely Information Technology (IT) sector (comprising telecommunications, computer software,

consulting services, etc), power generation and hotel & tourism. Increased FDI flows to service

sector and power generation is a welcome development because these areas had long been

reserved for the public sector enterprises which were inefficient in managing these services,

making Indias trade and industrial sector least competitive in international context. The share of

service sector rose significantly from one percent in 1992-93 to about 12 percent in 2000-01.

Cross-borderMergers& Acquisitions

Cross-border mergers and acquisitions (M&As) has been a very important feature of inward FDI

flow into India over the 1990s. Table 8 shows the relative importance of the various categories of

cross-border M&As in India between 1991-1998. FDI, involving financial inflow of overUS$3691mn, financed cross-border M&A activity, either through acquisition of substantial equity

stakes in existing ventures or through buy-out of real assets through asset sales. Among the

categories of cross-border M&As shown in Table 8, the most important in the early part of the

1990s was investment by foreign parents in erstwhile Foreign Controlled Rupee Companies (FCRC)

to raise their equity stake after the relaxation of restrictions on foreign equity investment imposed

by FERA.


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TechnologyCollaborations

A sectoral break-up of FDI inflow in India showed (as discussed earlier) that a large part of FDI

inflow came into medium or low technology industries, in which case the positive externality

arising from technology spillovers would also be limited. A liberal FDI regime might also weaken

the bargaining position of domestic firms in the international technology licensing market, as

foreign firms make equity participation a precondition for technology transfers. Data for India

actually shows a very sharp increase in the share of technology-cum-financial collaborations

approved in total foreign technology collaboration approvals (which includes foreign technology

collaborations with or without financial collaboration) from 1991 to 2000


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BalanceofPayments:CapitalandCurrentAccounts

Table 10 shows the overall balance of payments data and composition of the total capital account in

India over the 1990s. Average foreign investment inflows between 1993-2001 were more than 20

times the average levels between 1985-1991. This sharp increase in the level of foreign investment

flows, however, did not lead to an equally sharp increase in the total capital account surplus (i.e. net

capital account inflows), because of offsetting declines in other components of the capital account,

particularly in net aid flows and net NRI Deposits The increase in foreign investment inflows

nonetheless led to a change in the composition of the capital account, with foreign investmentbecoming a more important component of the capital account in the 1990s.

. ForeignExchangeRate

The RBI, over the period 1993/94-2000/01, intervened aggressively in the foreign exchange

market as a net buyer of foreign exchange which had the effect of resisting the upward pressure on

the exchange rate of the Rupee. Table 11 shows the nominal exchange rate of the Rupee against the


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US Dollar at end-March of each year during this period. As the figures indicate, RBI successfully

prevented any nominal appreciation of the Rupee with respect to all major currencies. Over this

period, it in fact, allowed a depreciation of the domestic currency to the extent of about 48 percent

in nominal terms, with respect to the US Dollar. However, in terms of the REER (Real EffectiveExchange Rate), based on the 36-country trade-weighted series published by the RBI 6, the Rupee

shows an appreciation of 12 percent between 1993-2001. If we look into the foreign exchange

reserves of the RBI, between March 1993, and March 2001, it shows an accretion to the tune of

about US$32bn.

SavingsandInvestmentRates

Table 12 gives gross domestic savings and investment rates as also trade and current account 7

deficits, as a percentage of GDP at current market prices, that the economy has been running over

the recent years. The figures show that between 1992-93 and 2000-01, the economy has been

running, on an average, a current account deficit of only 1.1 percent of GDP, which is slightly lower

than the current deficit in the early 1980s (1.3 percent of GDP) and substantially lower than that in

the second half of 1980s (2.2 percent of GDP). The average current account deficit during 1991-

2001 was around 1.04 percent of GDP at current market prices, much lower than the average for

the second half of the 1980s, i.e. 2.2 percent of GDP. Therefore, it implies that in spite of larger

foreign capital inflows in the 1990s, foreign financial inflows hardly played any significant role in

augmenting domestic investment rates.


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LiberalizationofInwardForeignDirectInvestmentPolicies

Very few industries are actually out of bounds for FDI under the present policy. Defense and

strategic industries, agriculture (including plantation), and broadcasting are some of the fewsectors where FDI is not allowed. In some sectors like insurance, FDI upto 26 percent foreign equity

participation has been allowed only recently. In other sectors, like telecommunications services

(paging, cellular and basic services), direct FDI participation is allowed to the extent of 49 percent

of the paid-up capital of licensees. Therefore, under the current policy regime, there are, for foreign

direct investors, three broad categories of industries. In a few industries, FDI is not allowed at all; in

another small category, foreign investment is permitted only till a specified level of foreign equity

participation; and finally a third category, comprising the overwhelming bulk of industrial sectors,

where foreign investment up to 100 percent equity participation by the foreign investor is allowed.

The third category has two subsets one subset consisting of sectors where automatic approval is

granted for foreign direct investment (often foreign equity participation less than 100 percent) andthe other consisting of sectors where prior approval from the FIPB is required.

EntryandEstablishment

Currently, foreign investors are allowed to set up a liaison office, representative office or wholly or

partially owned subsidiary (or joint venture) in India. Here we discuss the entry restrictions and

the changes in the regulations governing FDI (defined to include all investment where foreign

investor owns greater than 10 percent of the paid-up capital of a company registered in India). The

Statement on Industrial Policy (Government of India, 1991), made FDI in 34 industries (listed in

Annex III of Statement on Industrial Policy, 1991) eligible for automatic approval up to a foreign

equity participation level of 51 percent of the paid-up capital of a company. The automatic approvalwas, however, conditional on the requirement that capital goods import be financed out of foreign

equity inflow and dividend repatriation be balanced by export earnings over a period of time

(though the time period was not stated in the Policy Statement; these restrictions, moreover were

further liberalized subsequently). The new policy (announced in 1991) was far more liberal in

comparison with the then existing Act, FERA, that limited foreign equity participation to a

maximum of 40 percent, except in very few special cases. The policy revision, therefore, was more


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important in terms of the change in the level of control allowed to foreign firms over their Indian

operations.The FDI policy has undergone a number of changes over the 1990s, with a furtherexpansion of the list of industries eligible for automatic approval up to 51 percent foreign equity

participation and a general movement towards further liberalization of the foreign investment

regime. Without going into an enumeration of these changes, we are studying in somewhat greater

detail the policy regime governing foreign investment, as it existed in August 2001.

RegistrationProcedure

Foreign investors setting up operations in India have to register themselves with the Registrar of

Companies (just like domestic investors). Tax holidays and other such special incentives are

available for investment in certain sectors (like infrastructure projects), but these policies are

sector specific and also apply to domestic investment in the relevant sectors. Incentives have been

rule-based to a large extent (the most important incentive was perhaps the grant of guaranteed

return at excessive levels to the fast track power projects promoted by foreign investors in the

early 1990s; such policies were, however, discontinued after series of protests by civil society and

litigation in courts). However, lobbying (both by domestic interests opposed to entry of foreign

firms and by foreign firms willing to invest in the country) has played a role in setting the

rules/policies regarding entry of foreign firms. Notable among them being the intense lobbying that

was witnessed when the telecom or insurance sectors were being opened.

SpecialProvisions

In addition to the general policies on FDI, certain special provisions have been made for direct

investment by NRI and Overseas Corporate Bodies (OCBs), where NRIs hold at least 60 percent

equity. For example, NRI/ OCBs are allowed to invest up to 100 percent equity in air taxi operations

and civil aviation, where the general limit for FDI is 40 percent 27 NRI investments are also allowed

in housing and real estate, where general foreign investors are not allowed. NRI investment in

housing/real estate, however, carries restrictions of a 3-year lock-in period for the investment and

a limit of 16 percent on dividend repatriation. Further, NRI investments are allowed in sick

industries, for the purpose of their revival.

InvestmentFacilitationInitiatives/Institutions

The Government has also taken steps to smoothen the process of investment facilitation. The

Industry Ministry website of Government of India has all relevant information regarding the

policies and restrictions on FDI. Approval (where one is required) is granted through the single

window facility, through FIPB where foreign investors can send proposals to FIPB for approvaleven through the Internet. The status of any application is conveyed within 30 working days (the

status can be either accepted, rejected or put on hold, which implies that the FIPB could not

resolve the issue in its meeting). However, investors also need to get other statutory approvals,

including environmental clearance, clearance for land acquisition (many of these clearances are

given by the state government departments) and approvals from sectoral regulatory agencies (like

Insurance Regulatory and Development Authority for insurance, Telecom Regulatory Authority of

India for telecom services, Telecom Evaluation Committee for telecom equipment etc.) if the


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investment is made in those sectors. These statutory clearances are, however, required for

domestic investors as well. It is often argued that the procedural impediments faced by foreign

investors in getting these clearances from different levels of bureaucracy is acute, but it needs to be

realized that these hurdles adversely affect domestic investments as well.

PolicyRegime:theReality

At present, the entire FDI policy and procedures, as notified by the government from time to time,

are duly incorporated under Foreign Exchange Management Act (FEMA) regulations. Many of the

entry conditions had greater justification at the time they were imposed. With a much stronger and

more competitive economy many of these can be removed. To increase FDI flows, the Steering

Committee has recommended that the entry barriers to FDI should be further relaxed (see Table

14).With regard to policy regime, the committee has recommended the following:

Enact a Foreign Investment Promotion Law (FIPL) that incorporates and integrates aspectsrelevant to promotion of FDI.

Encourage states to enact a special investment law relating to infrastructure to expedite all

investments in infrastructure sectors.

FIPB should be encouraged to give initial central level approvals wherepossible.

Change governments Rules of Business to empower FIIA to expedite the processing of

administrative and policy approvals.

Sectoral FDI caps should be reduced to the minimum and entry barriers eliminated.

To attract FDI, the broad approach should be one of targeting specific companies in specific sectors.

The informational aspects of the strategy should be refined in the light of the perceived advantages

and disadvantages of India as an investment destination.

The Special Economic Zones (SEZs) should be developed as the most competitive destination for

export related FDI in the world, by simplifying applicable laws, rules and administrative procedures

and reducing red tape levels.

Domestic policy reforms in the power sector, urban infrastructure and real estate, and de-

control/de-licensing should be expedited to promote private, domestic and foreign investment.


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CONCLUSION

With the initiation of the economic reform process in 1991, India also started to open up her

economy and now India has stepped into a liberalised foreign investment regime. This is definitely

a positive development. Rising and continuous inflows of FDI could promise a variety of potential

benefits to India. Apart from providing a relatively stable and growing source of finance, FDI

inflows could impart positive impact in India though various channels like:

(a) FDI inflows can raise domestic investment rates in India if its mode ofentry is greenfield

investment;

(b) FDI can promote technology spillovers;

(c) Export-oriented FDI can play an important role in the process of exportled industrialisation in

India; and

(d) FDI can enhance the marginal productivity of the capital stock in the Indian economy andthereby promote growth.

Though the Government of India has been trying hard these days to attract FDI, FDI inflows into

India (as a share of GDP) have been much more modest than many other developing countries.

Indias glaring failure obviously warrants introspection. In this context, this report has attempted to

study the investment regime and actual performance of India with a view to build capacity and

awareness in investment issues and draw out the lacuna of the present system. The study is based

on the existing literature along with the feedback obtained from the surveys of stakeholders,

namely civil society groups and local firms. The following points have emerged from this report:

India now has in place a liberal policy regime towards FDI. Though it has done well in attracting FDI

flows of late, given her size, India attracts only small amounts of FDI flows. This is the generalopinion of all the stake holders. Most of the FDI flows have gone to the IT industry, automobile,

chemicals and power sectors. The government is working on ways to double FDI to over $8bn in a

year. The Steering Committee on FDI has proposed a number of measures to attract more FDI.

These include opening up of new sectors for FDI, reforming sectors like power to bring in functional

market structures and easing procedural hurdles. The idea is to identify sectors with vast potential

to woo FDI and fix specific targets. The Steering Group has advocated that a Foreign Investment

Promotion Law (FIPL) be enacted to incorporate and integrate aspects relevant to promotion of

FDI. It has also suggested that the informational aspects of the policy strategy should be refined in

the light of the perceived advantages and disadvantages of India as an investment destination. The

biggest stumbl ing block is Indias bloated bureaucracy. Approximately, only 20 percent of FDIapprovals translate into actual investment. This implies that the initial enthusiasm to invest peters

out by the time companies actually go through the process. According to investors feedback,

environmental clearances and legal work are still time-consuming.

Investment Policy of India

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