Abstract
In the World Bank’s Doing Business index, the South Asian region ranks low. The low rank suggests that firms face a difficult business environment there. The subindices suggest that South Asian firms encounter serious obstacles in dealing with infrastructure, the tax system, the bureaucracy, political instability, corruption, land acquisition, and environmental issues and in enforcing contracts. Now that it has been empirically proven that FDI benefits South Asian countries, the region undertakes measures to improve this scenario and ensure that the region continues to attract FDI in a sustained manner. This final chapter asks two key questions: (1) What are the major current constraints to FDI inflows? (2) What policy priorities/reforms can enhance FDI?
This chapter explores the difficulties arising out of economic stability, tax and other incentives, labour regulations, work ethics, social and economic infrastructure, and costs of production, potential domestic market, and an overall assessment of political and economic conditions.
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Notes
- 1.
Kearney (XXX) ranks India as the second most important FDI destination since 2005.
- 2.
- 3.
These can be called pull factors (for an elaboration, see Markusen and Venables 1999; Globerman and Shapiro 1999; Bajpai and Sachs 2000; Hanson 2001; Kinoshita and Campos 2003; Sahoo 2006; Sahoo and Nataraj 2008). However, there are also push factors such as recession, low international interest rates, and stringent environmental norms in developed economies.
- 4.
This section on India heavily draws from Sahoo (2012).
- 5.
- 6.
Tax exemptions cover income tax, central sales tax, excise duty, export profit, capital gains, dividend and customs duties on imported goods, and local excise.
- 7.
Proposals not covered under the automatic route would be considered and approved by the Foreign Investment Promotion Board.
- 8.
The first priority should be for the acquisition of waste and barren land. If necessary, single-crop agricultural land could be acquired for SEZs. If a portion of double-cropped agricultural land has to be acquired to meet the minimum area requirements, especially for multiproduct special economic zones, it should not exceed 10 % of the total land required for the SEZ.
- 9.
This is mainly because of slow progress in the WTO. Currently, India is among the top countries having regional trade agreements either in place or under negotiation. See Jaumotte (2004) for the impact of regional trade agreements on FDI inflows. However, Dee (2006) concludes that the trade provisions of preferential trade agreements, not the investment provisions, have had a positive impact on FDI activity in Asia.
- 10.
India is a federal country and there are many issues between centre and states and also among the states which make the reform process and also implementation slow. For fiscal federalism issues in India, see Sahoo (2001, 2004).
- 11.
The Govindarajan Committee report recommending simplification of regulatory procedures and investment norms, including the removal of archaic laws at the state level, was submitted to the Government of India in November 2002.
- 12.
SEZs in Nandigram (WB), Kalinganagar (Orissa), Kakinada (Andhra Pradesh), and Nandagudi (Karnataka) have faced stiff resistance from landowners (Mukherji 2008).
- 13.
The Sri City SEZ in Andhra Pradesh is an example. It did not witness a single litigation case while acquiring 2,700 acres of land.
- 14.
Since most of the defence equipment used for making weapons domestically is imported from foreign private companies, therefore allowing FDI with higher equity to produce defence equipment should be allowed.
- 15.
More FDI in food retailing would increase the productivity and efficiency of the supply chain, thereby reducing the gap between prices received by farmers and paid by consumers. Over time, increases in income of farmers would generate employment opportunities for intermediaries. In the short run, governments can compensate the losers through direct budgetary subsidies.
- 16.
For example, production of drugs using recombinant DNA, courier services, and in airports is on the Foreign Investment Promotion Board approval route even though 100 % FDI equity is allowed. Since these sectors are well regulated and monitored with appropriate terms and conditions, there is no justification for keeping these on the Foreign Investment Promotion Board route.
- 17.
Alluvial, deluvion, and char land survey and settlement (No. 2-2/87/90(1060)/1987); Settlement of char land (No. 2L-3/73/86(19)-R.L/1973); Settlement of Diluviated Lands Reformed in Situ (Memo No. 196(36)-V-177/77-L.S /1978), State Acquisition and Tenancy (Amendment) Act, 1994); Transfer of Khas Land between GOB departments (M:/Sha-10/HUD/general-1/94/345 (64)/1994) (Source: Land Administration Manual, Vol. 1, Ministry of Land, GOB)
- 18.
Afsana Rahman (2012), ‘Foreign Direct Investment in Bangladesh, Prospects and Challenges and its Impact on Economy’, Project Submitted to Asian Institute of Technology School of Management, Thailand.
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Sahoo, P., Nataraj, G., Dash, R.K. (2014). FDI Reforms in South Asia: Unfinished Agenda, Future Reforms, and Challenges. In: Foreign Direct Investment in South Asia. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1536-3_10
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