COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Dated laws are damming FDI flow to India: ASSOCHAM

The fragmented Indian market and the myriad restrictions on the free flow of goods threaten to undermine India's attractiveness as a destination for FDI, and perpetuate lop-sided regional development, a leading industry chamber has said.

An assessment by the Associated Chambers of Commerce and Industry of India on impediments to the smooth inflow of FDI and trading facilities reveals that investors contemplating to set up production in India feel inhibited as they are unsure of the access to the entire Indian market.

According to ASSOCHAM president K P Singh, uniformity in rules, procedures, standards and taxes all over India would benefit consumers and offer a level field to Indian players vis-a-vis foreign suppliers.

Artificial barriers dictate the location of industries within India, which would not reflect the true comparative advantage within the country. Besides entailing national loss, it runs the risk of some regions prospering at the expense of others.

The study notes that the cost of holding inventory increases if the producers or the traders cannot quickly move the inputs or outputs. They would have to hold a lot of inventories to beat the various bottlenecks on the movement of goods across the country.

Since 1991 good progress has been made in liberalising international trade (including customs laws, regulations and tariff rates), but nothing has been done about the internal trade sector. The time has come to devote attention to this important segment, which is crying for reforms, the ASSOCHAM president felt.

Internal trade policy reforms should be an important component of the unfinished reform agenda of the government in power, Singh said.

He said though many developed countries are switching to the concept of 'just-in-time' inventories, it is simply not feasible in India today. This puts Indian producers at a cost disadvantage.

Goods automatically tend to flow to the regions where there is shortage. The idea of goods, including food grains, to be cheaper in surplus states or regions and expensive in deficit states, which is a legacy of the past, goes against the concept of ''One India'' and equality of opportunities for all Indians. An Indian, wherever he may be living, should have unhindered access to goods coming from all parts of the country, he added.

In recent times, more and more imported goods are being put under open general license. But free flow of goods and services within India is not receiving the same amount of urgency from the policy makers.

Whenever a country moves up the ladder of economic development, the services sector acquires increasing importance, replacing manufacturing activity. Trade (including transportation, storage, packaging, wholesale and retail sales) is an important component of the services activity.

In developed countries the trader's margin is much higher than in developing ones. This is mainly because branded products and high value consumer durables (rather than unbranded basic necessities and bulk goods) absorb a greater share of consumer expenditure, Singh pointed out.

ASSOCHAM has therefore called for new institutions and laws at different stages of development of an economy. Unless laws and institutions keep pace with changes, they would retard development, he said.

Business news