India needs to strengthen and liberalise its regulatory framework and invest more in infrastructure in order to attract increased foreign direct investment (FDI), according to a new report by the Organisation for Economic Cooperation and Development (OECD).
The OECD’s Investment Policy Review of India says India has designed policies to encourage investment as part of market-oriented reforms since 1991 that have paved the way for improved prosperity.
“Restrictions on large-scale investment have been greatly relaxed. Many sectors formerly reserved to the public sector have been opened up to private enterprise. Import substitution and protectionism have been replaced by an open trade regime,” the OECD report notes.
But further reforms are needed. India’s policy framework for FDI still remains restrictive compared with most OECD countries. Meanwhile, its investment needs remain massive, with poor infrastructure holding back improvements in both living conditions and productivity.
Launching the report with India’s Minister of Commerce and Industry, Anand Sharma, in New Delhi, OECD Secretary-General Angel Gurría praised the progress achieved so far.
“India’s FDI performance and progress in the past year has been particularly strong, even in a very tough global environment,” he says. “This is a vote of confidence in India.”
But more needs to be done so that all of India benefits from needed investments. “One of the major challenges facing India is to take advantage of economic growth to reduce the gap between rich and poor,” says Gurría. “While national economic growth has been impressive, the gap between the richer and poorer Indian states has widened. This trend needs to be reversed through measures at both the national and state level.”
The Investment Policy Review of India lists a series of recommendations to achieve these objectives. Among other things, it recommends:
• further relaxing restrictions on inward FDI in sectors such as banking, insurance and retail trade
• regularly reviewing remaining FDI restrictions in other areas to ensure that their costs do not outweigh their expected benefits
• developing a system of comparable FDI statistics for States and Union Territories as a basis for cross-State monitoring of FDI performance
• strengthening corporate transparency and responsibility to align India more closely with internationally-recognised standards and practices.