India continues to be an attractive foreign direct investment destination to foreign investors despite controversies over special economic zones, a global investments expert said in New Delhi.
Noting that the SEZ issue was a 'political landmine' in India, Courtney Fingar, editor of Financial Times' global investments magazine fDi, said SEZ investment is a 'double- edge sword' that could be a mode of development at some places but not everywhere.
"It may be too early to say what it will do for India, but apart from anything else, the creation of such zones do send a signal to the global business community about the country's keenness for FDI," Fingar said.
He was in New Delhi to felicitate Commerce and Industry Minister Kamal Nath who was selected for the 'fDi Personality of the Year' award among other business and political leaders from Latin America, Africa, West Asia, Europe and North America.
JVDheldden, the Indian arm of fDi, also released a study called 'India as FDI Destination', which said despite huge FDI interests, the country is not realising its full potential because of the business environment and policy- related impediments.
Noting that GDP growth accelerated at 9.4 per cent during the last fiscal, JVDheldden director Suren Uppal said a significant increase in investment levels will be required for a sustainable growth of 8 per cent.
The promise of $500 million-plus investment opportunities in diverse sectors in India was marred by the obstacles at various levels, he said.
There is no single window clearance, Uppal said, stressing the need to establish a one-stop shop at the Centre
to implement policies and procedures to enhance investment as well as facilitate high-value projects across ministries and departments.
Multiplicity of agencies are also undermining the investment efforts in the country.
"Many agencies are engaged in doing similar activities relating to FDI -- such as FIPB, DIPP, FIIA, IC, SIA, and so on," the study said.
Bureaucratic delays, discretionary interpretation, vested interests, bias and subjective practices are retarding the pace of FDI in India, it said.
There are also 'too many touch points' with officials and agencies at central and state government levels, it said.
Dwelling on policy-related impediments, the study said there were investment restrictions and entry route barriers in several sectors of significant investment potential and interests.
Specific sectors include private banking where RBI approval is required for FDI beyond 5 per cent.
Regulatory constraints are hitting the private equity and venture capital as much as the 26 per cent FDI cap in insurance.
Though the retail front witnessed growth after allowing 51 per cent FDI in the single brand, the multi-brand retail continues to be closed area for the foreign investor, the study said.
The study said despite these impediments, India remains an attractive destination for its high returns in foreign investment at 20 per cent, compared to China (13 per cent) and Thailand (12 per cent).
Comparing India and China, Fingar said though both countries are most sought after FDI targets of multinationals, "their success story is quite opposite".
"While others (including China) seek to move from attracting FDI in manufacturing and assembly-line operations to the service sector, India is doing just the opposite, from success in the service sector to the manufacturing, such as
SEZs," she said.
SEZs would be complementing India's success in the service sector, she said, adding the boom in retail and service sector of IT and IT-enabled services and BPOs had a 'knock on' effect on the real estate.
Acute demand in office space and residential accommodation is driven by booming outsourcing and the service sector which has opened up opportunities for foreign investors, she said.
India's great rush for SEZs
