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India announced new policies on Thursday governing foreign direct investment (FDI). A foreign firm that entered into a joint venture with an Indian firm prior to 2005 will no longer be required to obtain a no-objection certificate from its partner before establishing a wholly-owned subsidiary in the same field of business in the country. Foreign firms felt that the policy was being misused by some Indian companies that would use the policy as leverage to extract financial concessions or to block new companies. Firms who entered the Indian market after 2005 already did not need to receive approval from their joint venture partners to expand operations. India is seeking to reverse a notable drop in FDI flows. FDI in the current financial year for April 2010-January 2011 is $22.1 billion compared to the $37.8 billion recorded in the full fiscal year ended March 31, 2010.

QUESTIONS FOR DISCUSSION:

  1. Although India is a vast and growing market, many multinational corporations are concerned about the unpredictability of doing business in India. Is India still too high risk for foreign investment or is it a market that cannot be ignored due to its size?
  2. The business environment in India is characterized as having murky laws and poorly defined regulations. How can India tackle the bureaucracy of its systems and improve the transparency of its business regulations?
  3. Many in India believe that it is important to protect India’s numerous small businesses and mom and pop stores from foreign competition. How are the new policies likely to impact India’s local enterprises?

SOURCE: Sircar, S. (2011, April 1). India eases its rules on foreign investment. Wall Street Journal, p. B5. (Retrievable online at: http://online.wsj.com/article/SB10001424052748703712504576233893758349276.html)

RELATED ARTICLE: Denyer, S., & Lakshmi, R. (2011, April 2). India frustrates foreign investors with its unpredictable tax policies. The Washington Post. (Retrievable online at:
http://www.washingtonpost.com/world/india-frustrates-foreign-investors-with-its-unpredictable-tax-policies/2011/03/17/AFVpacLC_story_1.html)

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