WEDNESDAY, MAY 08, 2024
The Economist Intelligence Unit, an international organization that provides advice, guidance and technical assistance to many companies and international investors, has recently released a list that includes the most business-friendly countries in the world. India is ranked at 51 in this list. This list includes the countries that offer the best opportunities for large investors to invest in various sectors. Factors such as macroeconomic stability, political situation, market opportunities, business-to-business barriers or restrictions, and tax regimes have been considered to determine countries' positions on the list.
Singapore tops the list for investment. Why is India, which in fact claims to be the third world economic power, at the 51st position in this list then? There are many reasons for this. The amount of foreign direct investment in India is decreasing. Foreign investment in India has fallen to its lowest level in the current financial year and the percentage of GDP has also declined. Net foreign investment fell to $13 billion in the year from September while it was $38 billion in the same period a year earlier, according to reports by HSBC Holdings PLC.
The figure was at $44 billion in India's 2021 fiscal year, which ends in March. In fact, new investments include everything from semiconductor plants led by US companies to multi-billion-dollar renewable energy projects from Gulf countries, still foreign investment is declining rapidly. Economic experts give many reasons for this. According to some economic experts, American investors are trying to move away from China, but their preferred destinations are still Vietnam and South Korea, and to some extent India, but here it is only in certain sectors of the economy. Therefore, there is no investment in India.
Another major hurdle for foreign investors, according to some financial analysts, is that India has scrapped all bilateral investment treaties. This has stopped foreign companies from getting judicial protection in India. Bilateral investment treaties must provide various protections to companies investing from one country to another. Till 2015, India had signed such agreements with 74 countries.
Minister of State for External Affairs Rajkumar Ranjan Singh informed the Rajya Sabha in March 2023 that out of these 74 countries, the government sent termination notices to 68 countries with a request for renegotiation. Since 2015, the Government of India has signed four agreements, two of which are in force. Some economists say that the termination of these agreements had a direct impact on foreign investment.
When a company who knows nothing about India but wants to invest here, is apprehensive about land acquisition, labor issues and various other things. The company needs judicial protection to appeal the same. But foreign investment was affected as the government abrogated these bilateral agreements, removing judicial protection for investors.
The latest statement released by the Reserve Bank of India showed that net FDI inflows stood at $4.8 billion in the first half of the fiscal year (April to September last year), as against $19.6 billion in the same period last year. HSBC said the fall in FDI was puzzling given the economy's rapid growth and growing share of global trade. The government expects gross domestic product (GDP) to grow 7.3% in the fiscal year ending in March, matching last year's pace.
Explaining last year's FDI decline, HSBC said it was due to changes in investor needs and the investment sector rather than a decline in interest in the Indian economy. One factor is declining investment in Indian tech start-ups, mirroring global trends, the bank's economists said in a report. Another important aspect is that investments in the so-called physical sectors such as automobiles, pharmaceuticals and construction are declining, instead many investors have shown interest in investing in emerging sectors such as artificial intelligence, data centers and electric vehicles.
The bank said these sectors may take longer than normal to materialize as investor appetite shifts to new sectors, so a fresh wave of FDI is likely after some time. India's share in global FDI is also declining.
In December 2023, Minister of State for Commerce and Industry Som Prakash told the Rajya Sabha that the threat of a global recession, the financial crisis due to the Russia-Ukraine conflict, global protectionist measures and recession have also affected FDI inflows.
The Rajya Sabha was informed that the real GDP growth rate of Singapore, USA and UK which are major source countries of FDI has declined, which has also affected India. Many economic experts believe that the reason for the decline in foreign investment is the wrong economic policy of the government.
On one hand, there is a claim that GDP is increasing, while on the other hand, foreign investment has decreased. However, this is not an issue in elections. BJP has alleged that even after Independence, Nehru's Congress kept the country underdeveloped without reviewing the economic condition of the country.
