Present reforms not enough, Establish an Open Market Economy to attract FDI: Industry tells Govt.

NEW DELHI: Not content with the economic reforms brought in by the Indian government so far, the business community urges it to do more to bring true-spirited economic freedom for the realization of the ‘Open Market Economy’ in India.

A recent story titled “Demonstrate strong will to invite investors to India; announce attractive package: Japan tells India” published on www.asiancommunitynews.com has evoked sharp reactions from various sections of the business world including Japan and South Korea.

There lies ample scope for further reforms in sectors like land acquisition, labour & human resources, taxation, de-regulations, and others. The issues like certainty and transparency in the legal system, speedy resolution of problems, simplification of procedures, and others need to be addressed on an URGENTLY basis considering the fact India stands in direct competition with other Southeast countries when it comes to attracting FDI.

It is also suggested that the government must improve communication with industry representatives from India and abroad, and allow them to participate in the policymaking process.

As Nobuhiro Takahashi, Advisor of Suggestions Activities, Japan Chamber of Commerce and Industry (JCCII) puts it, “JICA’s recent positive appeal of Japan’s Investment is very much appreciated. India is truly a huge market. In pursuance of New India calling for Japan’s Investment efficiently, India might be required to come out with its strong intention to realize the true ‘Open Market Economy’ with the true-spirited economic freedom, and push for more de-regulations.”

Nobuhiro Takahashi who is also the Managing Executive Officer (MEO) with a well-known Japanese auto-component manufacturing company in India was responding to Katsuo Matsumoto, Chief Representative, Japan International Cooperation Agency (JICA)’s remarks made recently. JICA had urged India to announce some attractive support package including tax incentives for the Japanese companies to demonstrate a strong will to invite investors to India.

India might need to lay more emphasis on a stable political environment, more effective ease of doing business, and sound infrastructure said Takahashi adding that to utilize this opportunity of JICA’s positive comment, India would get effective international support for buttressing her fiscal spending.

While responding to the ACN Network’s social media post, Euy Don Park, President of the Korean Association in India that represents 15,000 Korean nationals staying or working in India also supported JICA’s comments by saying, “Agreeable and supporting his talk a clear reality.”

Sun Chang Hong, Managing Director, Nong Hyup Bank (NH bank) – a Korean bank in India too said, “Same to Korea and India relationship.”

The sector which has been awaiting significant reforms includes the legal system that urgently requires the Indian government’s attention.

Chandrasekhar Tampi, Senior Partner (Corporate – Mergers & Acquisitions/Emerging Businesses), Kochhar & Co.- India’s well known legal consultancy firm, said that the reforms in the legal system that cuts down undue delays and reduces cost overruns thereby creating a business environment that is favourable to the commercial enterprise are essential in stimulating the economy in the post-COVID-19 phase.

“Simplification of the procedure, reduction of cost overruns, certainty, and transparency in the legal system are the topmost on the wish list of any foreign investors in India. Speedy resolution of commercial disputes is at the root of sustained and thriving business culture,” Tampi added.

A ‘world’ of caution for India: Still many missing links to attract foreign investments to India

While lauding India’s rolling out of initiatives like Merchandise Export from India Scheme (MEIS), the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and comprehensive COVID 19 stimulus package, and others, the Korean Chamber of Commerce and Industry in India (KOCHAM), which has over 750 Korean companies as member in India, offers a word of caution too.

According to Hee-chul Jung, Secretary-General, KOCHAM, as a strong advocate of ‘Invest in India’, it is more appropriate for KOCHAM to address the problems and solution process that companies face.

“Problems do not scare away business.  Where there’s business, there’s always a problem.  But if the solution process is below expectations, then investors will look for alternative locations.  The process of how problems are solved is a valuable determining factor for investment.  This troubleshooting process could be a resource for us, KOCHAM too.  We can tell the companies or potential investors ‘don’t panic, we know a way’.  Of course, we try to be careful about what we advocate or protest.  And whenever possible, KOCHAM insists on issues of mutual benefit,” said Hee-chul Jung.

According to the experts, today global economies are undergoing turbulent times and so is the Indian economy. The lives of billions of people around the world have been affected to varying degrees by covid-19.

“India’s attractiveness as an FDI destination has surged in recent times. In 2019, it was among the top 10 countries attracting foreign funds, receiving billions of dollars in a variety of sectors, including services, technology, IT and telecom, and construction. In order to promote domestic manufacturing, over the last few years, India has made significant changes to FDI Rules, in order to attract foreign investors. However, there are still many missing links to attract foreign investments to India,” said Atul Puri, Partner, ShineWing India.

Land reforms: Dedicated Special Economic Zones (SEZs) for Japanese, Korean companies:

Recently, a number of state governments have effected many changes in the land acquisition laws way beyond the conventional lines and all these states are trying to outdo each other by bringing in a plethora of reforms to attract foreign investment, and major of these reforms include land acquisition laws.

Recently Haryana introduced land leasing model for the first time, and offered land on lease basis for the industrial plots measuring 10 and 25 acres for as low as Rs. 10 Crores and Rs. 25 Crores respectively.

Jagdish Kukreja, an HR Business Analyst and CEO, EDP Services India, suggests that the governments should notify special land parcels/clusters with buildings and other ready infrastructure available inside these clusters for the foreign investors.

“These dedicated land parcels/clusters to be awarded to foreign investors on the lease model should be well connected with the road, railway, and airway routes from all angles. The large multinational companies as well their ancillaries, suppliers, and vendors should set up their units within the four walls of these clusters. It will also help in containing cost for these companies as the land would be available on a lease basis for 5-10 years, or more. These clusters should have housing for the workforce and introduce walk-to-work culture to increase productivity, and reduce the cost of operation,” Kukreja added.

The similar idea was mooted by Suresh Prabhu, former union commerce and industry minister and India’s Sherpa to G20 and G7 while interacting with apex Japanese and Korean trade associations recently, and he offered to set up Special Economic Zones (SEZs) for Japanese and Korean companies moving to India.

India competing with other Southeast Asian countries on FDI

Tomio Isogai, the former Managing Director, Sharp India Ltd, said that all points were discussed well between the two sides.

“Invest India, as I understand, has done a comprehensive study to compare all aspects of FDI with the other Southeast countries. It requires ensuring India is not lagging behind among them, particularly in terms of government incentives and tax treaties for the newcomers,” said Isogai, who also happens to be a well-known freelance advisor on Indo-Japanese relations.

According to experts, as India makes efforts to invite MNCs to establish or expand their businesses here, it needs to acknowledge that there is more that needs to be done to make this desire a reality.

“First and foremost, there has to be consistency in our policies. We cannot allow successive governments at the Centre or states to overturn previous policy decisions that affect industry or businesses. In spite of loud claims of single-window clearances, the actual response of government departments remains abysmal or ignorant at best. Labour laws, taxation, land issues all need a concerted effort to be made business-friendly. However, the caveat is that any decision should be done after careful environmental assessments so that we don’t have any long term negative impact on the environment,” said Dikshu C Kukreja, Arch. (Urban Design), Harvard University, USA, Managing Principal, C P Kukreja Architects (CPKA).

Communicate first, Involve industry representatives in policymaking:  

Before rolling out new regulations impacting the domestic industry as well as foreign entities, the Indian policymakers must involve their representatives in the decision-making process instead of just announcing the policies leaving the industry awe-struck.

“Talk to the representatives of the industry-first before designing a new regulation that will have an impact on the businesses and share the results with the public right away. And when such meetings are held, don’t fill the industries with just local companies. Let foreign investors like Korean companies join the discussions,” suggested Hee-chul Jung, Secretary-General, KOCHAM.

“Let me turn to more tender news.  This fiscal year, our relationship has made a significant step forward.  According to statistics in the Department of Commerce, Korea has become the 6^th largest trading partner with India.  We are right after the G2, UAE, Singapore, and Saudi Arabia in total trade.  India now exports more commodities to Korea than to Indonesia or Japan,” Hee-chul Jung revealed.

Bring political stability and safe business environment:

India’s current policymaking environment is marked by significant uncertainty, which may not help the cause of attracting potential investors, warn experts.

“Complex tax and regulatory compliance structure, multiple approvals from different authorities, labour unions and exaggerated red-tapism in India, shy away potential investors to bring in new technology and know-how for setting up a business in India. In a nutshell, the Government needs to work from a 360-degree perspective in order to convert red-tapism into red carpet and welcome foreign investors, which will be very much in the interest of both government and domestic market,” Atul Puri, Partner, ShineWing India adds.