Indian Government Institutes New Policies to Halt Falling Foreign Direct Investment
NEW DELHI—Concerned by falling levels of foreign indirect investment, the Indian government liberalized its policies the week of March 28 in the hope of increasing investor confidence.
It was prompted to make changes in FDI rules by the latest figures. In February, FDI fell to $1.7 billion. In March, it fell to $1.2 billion. Nor are these figures an aberration. For the period April 2010 to February 2011, FDI inflows into the economy sank by 25 percent to $18.3 billion.
In a bid to make India more competitive as an investment destination and attract technology inflow, the key agency on FDI, the Department of Industrial Policy and Promotion, in its half-yearly update of FDI rules, announced March 31 that it has done away with a 13-year old rule on joint ventures. It required foreign companies who have an existing joint venture in India to seek their partner’s permission before setting up a wholly owned subsidiary in the same business.
The rule was designed to protect Indian companies from competition but the effect has been to deter foreign investors. Those who had hostile Indian joint-venture partners who did not allow them to enter into similar tie-ups with other Indian companies were stymied. Now foreign companies will no longer need the approval of their local partner…