The US State Department recently published a report titled ‘2021 Investment Climate Statements: India’, recognizing the structural economic reforms implemented by the Indian Government in response to the economic slowdown and Covid-19 pandemic. Regardless, the report states that India continues to be a challenging place for conducting business. The UK India Business Council (UKIBC) also conveyed concerns about potential negative repercussions for the UK and multinational companies due to some of the reforms under the Atmanirbhar Bharat programme.
Recent Economic Reforms
In February 2021, the Indian government announced a plan to raise $2.4 billion via an ambitious privatization program intended to minimize the government’s role in the economy. A new package outlining liberalization measures was announced in August 2019, which expanded a number of sectors, including coal mining and contract manufacturing. March 2021 saw further liberalization of India’s insurance sector, raising foreign direct investment (FDI) limits from 49% to 74%.
Atmanirbhar Bharat Abhiyan: A Response to Covid-19 Economic Slowdown
To combat the economic slowdown ensuing from the Covid-19 pandemic, the government initiated the Atmanirbhar Bharat Abhiyan. This program provides extensive social welfare and economic stimulus packages, increased public health and infrastructure spending, and aims to improve safety compliance and quality goods to boost the global market share.
Adopting the PLI Scheme and Implementation of IBC
Adoption of production linked incentives was another significant step taken to foster growth in the manufacturing sector. The Insolvency and Bankruptcy Code (IBC) introduced in 2016, brought notable changes to the insolvency framework, leading to enhanced ease of doing business in India.
Matching Global Arbitration Standards
In 2021, India passed the Arbitration and Conciliation (Amendment) Act designed to deal with domestic and international arbitration and define the law for conducting conciliation proceedings.
National Infrastructure Investment Fund & Labour Code
India established the National Infrastructure Investment Fund (NIIF), a sovereign wealth fund to boost infrastructure sector investments. The government’s investment in this fund is $3 billion, with an additional $3 billion from the private sector. Four new labour codes have been announced as part of the 2021 budget, aiming to simplify the country’s old labour laws.
Improving Ease of Doing Business: Invest India and PRAGATI Initiative
The official investment promotion and facilitation agency, Invest India, works with investors, offering assistance with market entry strategies, industry analysis, partner search, and policy advocacy. The Pro-Active Governance and Timely Implementation (PRAGATI) initiative is another endeavour to expedite the approval process for major projects.
Economic Policies Pose Challenges for Foreign Investors
A few controversial decisions such as removal of special constitutional status from Jammu and Kashmir and the passage of the Citizenship Amendment Act have raised concerns among investors. In addition, protectionist measures, bilateral investment agreements, procurement rules limiting competitive choices, weak intellectual property rights protection, and corruption add to the difficulties faced by foreign investors.
Way Forward
Creating an appealing and reliable investment atmosphere by reducing investment barriers and minimizing bureaucratic hurdles is a crucial requirement. Cooperation between India and other countries in areas such as standards, trade facilitation, competition, and anti-dumping practices is also recommended.
