DMPQ- Despite the considerable easing of restrictions why is India not a preferred destination for FDI ?

. India has a large pool of English-speaking workforce, cheap labour, natural resources,  a growing economy, second largest market and a government-favouring FDI. Despite the considerable easing of restrictions there are number of factors which are haltering FDI boost:

  • First and the foremost, a foreign investor draws a global comparison before taking a decision on the choice of destination and thus the government has to look from  ‘their perspective and not from ‘its own perspective. It has to see what are they  looking for and then providing it to them.
  • There are a lot of areas where India has a comparative disadvantage over economies such as China, Korea and Brazil in infrastructure, stringent labour laws, still large dominance  of public sector, relative imperfect market and so on.
  • It may also be mentioned that globally India is ranked very low in terms of the ‘ease of doing business’.
  • Even though there is single window clearance for all FDI, it is ‘ineffective’ as still multiple clearances are required at the central and also state governments level.
  • The earlier controversial Enron power project and the present controversy around POSCO and die Vedanta group serve as enough deterrents to FDI.
  • Even though policy has changed but the mind sets have not changed, it is still felt  that India is doing them a favour rather than the other way around.
  • The state governments do not give due priority of the same degree as the central government leading to delays.
  • The labour market is inflexible with regulations around them making it difficult for foreign investors to comprehend and prefer to go to other destinations which have  greater flexibility in labour laws.
  • Yet another factor has been the fact that the so-called reforms and the liberalization policies still lack transparency with explicit licensing replaced by implicit back door  regulations in the economy.
  • Somehow the clear message of liberal FDI in India has not been publicized at the international level. Something as ‘India as an investment destination’.
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