Prime Minister Narendra Modi’s recent visit to Japan has culminated in that country promising to make substantial investments in India. PM Modi, on his part, has promised to remove red tape and lay out the red carpet instead. He also said that a special cell will be created within the PMO to expedite Japanese investments. While the determination to ensure that intent materialises in tangible projects is commendable, the announcement regarding the creation of a separate cell raises questions.
First, will the PM create a separate cell within the PMO for every major investing country? Second, given that any investor will have to comply with Indian laws on regulating foreign investment, company law, environmental clearances etc, will the special cell expedite the process by asking officials implementing these laws to prioritise investments from one country over another, or even over domestic investments? Also, foreign investment can be a complicated affair. In many cases, companies based in one country incorporate overseas to take advantage of favourable tax regimes and treaties before making investments. Many companies, for example, incorporate in Mauritius and Singapore to take advantage of tax-related agreements that India has entered into with them. In such cases, it may become difficult to determine where the company is actually based.
We require clear institutional solutions to resolve these issues. Both foreign and domestic investments will gain from a curb on discretionary powers under existing laws that act as road blocks. They will also profit from the incorporation of clear timelines for approving and rejecting business permissions. Investors will further benefit from the certainty of an exhaustive but clear list of legal compliances that are required for their investments to get going. The current legal framework surrounding FDI, for example (the first entry barrier for foreign investment), consists of a patchwork of laws and institutions. This generates great legal uncertainty and slows down investments. Indian administrators seem to assume that an absence of procedure ensures speed and efficiency. This has been proved wrong in many cases, and in some cases has led to allegations of bias and corruption. The PM should turn his attention to creating simplified procedures that are steeped in the rule of law, and promote the equal treatment of all investments.