INVESTMENT POLICY OF INDIA

INTRODUCTION
India continued with its receptive attitude towards FDI for about a decade after it gained
independence in 1947. This was on account of limited domestic base of created assets viz.,
technology, skills and entrepreneurship. During this period foreign investors were assured of free
remittances of profits and dividends, fair compensation in the event of acquisition, and were
promised national treatment. However, the second five-year plan (1956-61) made a significant
departure by emphasizing self-reliant economic development and adopting a restrictive attitude
towards FDI in order to protect the domestic base of created assets. Further in 1973, the Foreign
Exchange Regulation Act (FERA) came into force which prescribed a ceiling of 40% in equity by
foreigners in Indian companies. This resulted in many foreign companies leaving India in the late
1970s. However, there was a reversal in the policy stance during 1980s. The liberalization of
industrial and trade policies during this decade was accompanied by an increasingly receptive
attitude towards FDI and foreign collaborations. In order to modernize the Indian industry greater
role was sought to be given to trans-national corporations (TNCs). Further, exceptions from the
general ceiling of 40 percent on foreign equity were allowed on the merits of individual investment
proposals. Riding on the wave of reforms, full-scale liberalization measures were initiated in 1990s
with a view to integrating the Indian economy with the world economy. The policy allowed
automatic approval system for priority industries by the Reserve Bank of India. For the purpose of
granting automatic approval three slabs of foreign ownerships were defined viz., up to 50% up to
51% and up to 74%. Albeit such limits were relaxed year after year. For instance, in some sectors,
up to 100 percent foreign investment on automatic basis is allowed now. Foreign Investment
Promotion Board (FIPB) was set up to process applications for cases not covered by automatic
approval. Replacement of FERA by Foreign Exchange Management. Act (FEMA) removed
shareholding and business restrictions on TNCs. Further policies relating to foreign technology
purchase and licensing were liberalized to improve access to foreign technology. Finally, outward
investments by Indian enterprises were liberalized and proposals satisfying certain specified
norms were given automatic approval. These changes in national FDI policies were complemented
by bilateral investment treaties (BITs) and double taxation avoidance treaties (DTATs), many of
which have been signed by India in recent years. Foreign investment started pouring in after India
launched its liberalization programmed in 1991. However, India’s performance in terms of
attracting foreign investment has not been very encouraging. India’s inward FDI stock as a
percentage of GDP in 2001 stood at 4.7, one of the lowest in the world. The factors that determine
“location decision” of the TNCs, which make most of FDI may be tax structure, special programme
and schemes, competition regime, entry and establishment requirements, investment protection,
technology transfer, natural resources and skill levels, incentives and institutional mechanism.
However, what actually determines the flow of FDI (and how) is quite a complex issue. For example,
on most of these accounts, India may look to be more attractive than China, but fails to attract even
one-tenth of FDI inflows that China receives. Since the 1980s, a consensus has been growing, even
among the developing countries, that the net result of foreign direct investment (FDI) can be
positive. The phenomenal drop in total Overseas Development Assistance (ODA) in the 1990s has
also forced most of the countries to increasingly look at FDI as an alternative source for financing
development. It is considered to be a better option compared to bank credit, because of high and
variable interest rates, and portfolio investment, which carries its own risks. It is also being
considered as the principal channel for the transfer of long-term private capital, technology and
managerial knowhow, as well as a link between national economies and the world market. The
importance of FDI in development has dramatically increased in recent years. FDI is now
considered to be an instrument through which economies are getting integrated at the level of
production into the global economy by accessing a package of assets, which include capital,
technology, managerial capacities and skills, and foreign markets. It also stimulates technological
capacity building for production, innovation and entrepreneurship within the larger domestic
economy through catalyzing backward and forward linkages. The trade effects of FDI depend on
whether it is undertaken to gain access to natural resources or consumer markets, or whether FDI
is aimed at exploiting vocational comparative advantage and other strategic assets such as research
and development capabilities By its very nature, FDI brings into the recipient economy resources
that are only imperfectly tradable in markets, especially technology, management know-how,
skilled labor, access to international production networks, access to major markets and established
brand names. In addition, FDI can make a contribution to growth in a more traditional manner, by
raising the investment rate and expanding the stock of capital in the host economy. It has thus been
widely recognized by governments that FDI could play a key role in the economic growth and
development process. Glancing back at the pages of history, India, if not completely hostile, was not
very receptive to foreign private capital. Long cherished dreams of the nationalists to build strong
home-grown champions and apprehensions about FDI eroding sovereignty and culture dominated
Indian economic scenario. Today, such fears look vastly overblown, and the Indian policymakers
openly welcome FDI.

Brief Overview of Macroeconomic Context

Market Size and Growth

In terms of the overall market size of the economy (as measured by GDP at current market prices),
India’s GDP was around US$510bn in 2000-

1. A cursory look at Table 1 illustrates that the growth rate of both GDP and industrial
production shows a decline to very moderate levels in the late 1990s after a brief spurt in
the mid-1990s. There has been a debate among economists centring on the growth
performance of the economy in the post reform period. While the more popular view is that
growth has accelerated after the implementation of the reforms package, Nagaraj (2000),
after a more robust statistical analysis of growth rates of GDP and its various components
using data for 1980-2000 argues that there is no significant increase in the trend rate of
growth of GDP in the 1990s. According to this estimate, the average growth rate during
1980-81 to 1999-2000 was 5.7 percent while the same during 1980-81 to 1990-91 was 5.6
percent. In fact, a statistically significant decline in the secondary sector can be identified
over the last decade, i.e. post reforms.

Growth Rate of GDP and Industrial Production in India (in percent)

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01
GDP growth 6.2 7.8 7.2 7.8 4.8 6.6 6.4 5.2
Growth in IIP* 6 8.4 12.7 6.1 6.6 4.1 6.7 5.1
Table-1

Rates of Interest and Inflation

Table 2 shows the movement of nominal interest rates of scheduled commercial banks in India over
the 1990s. Over the 1980s, interest rates were regulated, the prime lending rate (PLR) of State Bank
of India (the largest scheduled commercial bank) being pegged at about 16 percent and that of
Industrial Development Bank of India (IDBI, which is a term lending institution; also called a
financial institution, FI) pegged at 14 percent. Domestic interest rates were raised sharply in mid-
1991, as a result of the monetary contraction that was part of the International Monetary Fund
(IMF) style ‘stabilization’ package. Mid-1992 onwards, however, interest rates were slowly brought
down to lower levels, the declining trend continuing till date. Since October 1994, banks were
allowed freedom to set their own lending rates for most categories of advances. As a result,
different banks started announcing different lending rates according to their own business
judgments – so data for the later period shows the range within which PLRs of the five largest
scheduled commercial banks in the country varied.
As the data in Table 2 show, the declining trend in nominal interest rates
was reversed in early 1995.

Domestic Prime Lending Rates (% per annum)

 Year Average interest rates
1990-91 16.5
1991-92 16.5
1992-93 19.0
1993-94 19.0
1994-95 15.0
1995-96 16.5
1996-97 14.5
1997-98 14.0
1998-99 13.0
1999-00 12.0
2000-01 11.9
2001-02 11.5
2002-03 11.3
Table-2

It is worth mentioning here that banks could set their lending rates freely from October 1994, and
this rise in interest rates was, perhaps, a reflection of banks’ strategy. This was mainly because
recovery in industrial growth in 1994-95 and 1995-96 resulted in rising demand for credit from
industry from around early 1995. Though Reserve Bank of India (RBI), in general, has tried to bring
down the interest rate structure, its efforts were circumvented every time due to depreciation in
the foreign exchange market forcing it to raise short-term domestic interest rates (in order to
encourage inflow of foreign exchange through banking channels as well as from
exporters/importers).

Rates of Inflation

Of course, it is real rather than nominal interest rates that are of importance as far as economic
activity is concerned. Table 3 shows different measures of inflation in the economy through the
1990s. Figure 1 plots the trends in movement of real interest rates using the average annual
changes of price of manufactured goods to derive the real rates. As shown in figure 1, real interest
rates remained high, at more than 8 percent, through most of the 1990s - except for a brief period
in 1994-95, when real rates declined to about 4-6 percent. So, the decline in nominal rates in the
latter half of the 1990s was not accompanied by a decline in real rates as inflation rates especially
that for manufactured goods fell sharply during that period.

Domestic Inflation Rates

All commodities Manufactured products

 Point to point Average Point to point Average
1990-91 12.1 10.3 8.9 8.4
1991-92 13.6 13.7 12.6 11.3
1992-93 7.0 10.0 7.9 10.9
1993-94 10.8 8.3 9.9 7.8
1994-95 10.4 10.9 10.7 10.5
1995-96 5.0 7.8 5.0 9.1
1996-97 6.9 6.4 4.9 4.1
1997-98 5.3 4.8 4.0 4.1
1998-99 4.8 6.9 3.7 4.5
1999-2000 6.5 3.3 2.4 2.7
2000-2001 4.9 7.2 3.8 3.1
2001-02 1.5 3.6 0.5 1.9
2002-03 6.5 3.4 5.4 2.6

The high real rates of interest prevailing in the domestic economy creates a ‘cost of capital’
disadvantage for domestic enterprises, vis-à -vis their foreign competitors, headquartered in
economies with lower interest rates, which can translate into a strategic disadvantage as well.
Domestic business groups and chambers of commerce have, in fact, been complaining about the
high cost of capital that they are facing over the last decade.

Investment Inflow (1991-2001)

After the liberalization of capital controls in 1991, there has been a substantial increase in the
inflow of foreign investments into India. Table 4 gives the year-wise break-up of foreign investment
inflows. Though liberalization in the foreign investment regime for direct investment occurred in
July 1991 and for portfolio investment in September 1992, foreign investment inflows picked up in
earnest only from the last quarter of 1993. As Table 4 indicates, FDI as percent of GDP has
increased significantly in the last decade. However, portfolio investment did not show a consistent
trend after 1995 and even touched a negative figure in 1998 and then again started increasing in
1999-2000 followed by marginal decline in 2000-2001. Movement in direct investment flow
reflected considerable rise from US$6mn in 1990-91 to US$4784mn in 1997-98, but beyond 1998
there came a brief period of downtrend. But soon resurgence came with a rise in FDI to US$5102 in
2008-09

Table-4 Total Foreign Investment Inflows over the 1990s in US$mn

90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-
01
Direct Investment - - 280 403 872 1419 2058 2956 2000 1581 2342
Portfolio Inv 6 4 244 3567 3824 2748 3312 1828 -61 3026 2760
Total 6 4 524 3970 4696 4167 5370 4784 1939 4607 5102
FDI as % of GDP 0.03 0.05 0.14 0.21 0.41 0.60 0.73 0.87 0.59 0.48 0.49
FDI as % of GDI 0.12 0.21 0.55 0.93 1.57 2.25 2.99 3.47 2.56 2.05 2.08
Table-4
It must be mentioned that the definition of FDI and computation of FDI statistics used by Reserve
Bank of India (RBI) does not conform to the guidelines of the IMF. Some of the main discrepancies
are that India excludes reinvested earnings in its estimate of actual FDI inflows. It does not include
the proceeds of the foreign equity listings and foreign subordinated loans to domestic subsidiaries
which, according to IMF guidelines, are part of inter-company loans (long- and short-term net loans
from the parents to the subsidiary) and which should be a part of FDI inflows. India also excludes
overseas commercial borrowings, whereas according to IMF guidelines financial leasing, trade
credits, grants, bonds, etc should be included in FDI estimates.

Component-wise revised FDI data (in US$mn)

Year Equity Reinvested Other FDI Inflows toIndia FDI Inflows to India Difference
Earnings Capital – Revised Data – Current Data
2000-01 2400 1350 279 4029 2342 1687
2001-02 4095 1646 390 6131 3905 2226
2002-03 2700 1498 462 4660 2574 2086

Recently, the government has reorganized FDI data for 2000-01, 2001-02, and 2002-03 along the
lines recommended by the IMF, to include some uncaptured elements of capital, to end under-
reporting of FDI.3 The new formula would include control premiums, non-competition fees, and
reinvested earnings and interoperate borrowings as FDI.

Approved and Actual Inflows of FDI

After the liberalization of entry norms for foreign investors in India in 1991, FDI flows into the
economy have increased, especially in comparison to the levels of inflow experienced prior to 1991.
Table 5 summarizes the industry-wise distribution of foreign collaboration approvals granted over
the 1990s (between August 1991 and August 2001). The total approved amount of FDI in these
proposals was US$56.5bn.
industries accounted for about 70 percent of the approved FDI amount, signifying that FDI inflow
has remained confined/concentrated within a few industrial sectors. Table 7 shows the sectoral
distribution of FDI. Until the early 1990s, FDI was heavily concentrated in manufacturing.

Following 1991 liberalization programme, however, there has been a sharp rise in approved
foreign investment in tertiary sector that encompasses critical elements of the modern economy
namely Information Technology (IT) sector (comprising telecommunications, computer software,
consulting services, etc), power generation and hotel & tourism. Increased FDI flows to service
sector and power generation is a welcome development because these areas had long been
reserved for the public sector enterprises which were inefficient in managing these services,
making India’s trade and industrial sector least competitive in international context. The share of
service sector rose significantly from one percent in 1992-93 to about 12 percent in 2000-01.

Cross-border Mergers & Acquisitions

Cross-border mergers and acquisitions (M&As) has been a very important feature of inward FDI
flow into India over the 1990s. Table 8 shows the relative importance of the various categories of
cross-border M&As in India between 1991-1998. FDI, involving financial inflow of over
US$3691mn, financed cross-border M&A activity, either through acquisition of substantial equity
stakes in existing ventures or through buy-out of real assets through asset sales. Among the
categories of cross-border M&As shown in Table 8, the most important in the early part of the
1990s was investment by foreign parents in erstwhile Foreign Controlled Rupee Companies (FCRC)
to raise their equity stake after the relaxation of restrictions on foreign equity investment imposed
by FERA.
Technology Collaborations

A sectoral break-up of FDI inflow in India showed (as discussed earlier) that a large part of FDI
inflow came into ‘medium’ or ‘low technology’ industries, in which case the positive externality
arising from technology spillovers would also be limited. A liberal FDI regime might also weaken
the bargaining position of domestic firms in the international technology licensing market, as
foreign firms make equity participation a precondition for technology transfers. Data for India
actually shows a very sharp increase in the share of technology-cum-financial collaborations
approved in total foreign technology collaboration approvals (which includes foreign technology
collaborations with or without financial collaboration) from 1991 to 2000
Balance of Payments: Capital and Current Accounts

Table 10 shows the overall balance of payments data and composition of the total capital account in
India over the 1990s. Average foreign investment inflows between 1993-2001 were more than 20
times the average levels between 1985-1991. This sharp increase in the level of foreign investment
flows, however, did not lead to an equally sharp increase in the total capital account surplus (i.e. net
capital account inflows), because of offsetting declines in other components of the capital account,
particularly in net aid flows and net NRI Deposits The increase in foreign investment inflows
nonetheless led to a change in the composition of the capital account, with foreign investment
becoming a more important component of the capital account in the 1990s.

. Foreign Exchange Rate

The RBI, over the period 1993/94-2000/01, intervened aggressively in the foreign exchange
market as a net buyer of foreign exchange which had the effect of resisting ‘the upward pressure on
the exchange rate of the Rupee’. Table 11 shows the nominal exchange rate of the Rupee against the
US Dollar at end-March of each year during this period. As the figures indicate, RBI successfully
prevented any nominal appreciation of the Rupee with respect to all major currencies. Over this
period, it in fact, allowed a depreciation of the domestic currency to the extent of about 48 percent

in nominal terms, with respect to the US Dollar. However, in terms of the REER (Real Effective
Exchange Rate), based on the 36-country ‘trade-weighted’ series published by the RBI 6, the Rupee
shows an appreciation of 12 percent between 1993-2001. If we look into the foreign exchange
reserves of the RBI, between March 1993, and March 2001, it shows an accretion to the tune of
about US$32bn.

Savings and Investment Rates

Table 12 gives gross domestic savings and investment rates as also trade and current account 7
deficits, as a percentage of GDP at current market prices, that the economy has been running over
the recent years. The figures show that between 1992-93 and 2000-01, the economy has been
running, on an average, a current account deficit of only 1.1 percent of GDP, which is slightly lower
than the current deficit in the early 1980s (1.3 percent of GDP) and substantially lower than that in
the second half of 1980s (2.2 percent of GDP). The average current account deficit during 1991-
2001 was around 1.04 percent of GDP at current market prices, much lower than the average for
the second half of the 1980s, i.e. 2.2 percent of GDP. Therefore, it implies that in spite of larger
foreign capital inflows in the 1990s, foreign financial inflows hardly played any significant role in
augmenting domestic investment rates.
Liberalization of Inward Foreign Direct Investment Policies

Very few industries are actually out of bounds for FDI under the present policy. Defense and
strategic industries, agriculture (including plantation), and broadcasting are some of the few
sectors where FDI is not allowed. In some sectors like insurance, FDI upto 26 percent foreign equity
participation has been allowed only recently. In other sectors, like telecommunications services
(paging, cellular and basic services), direct FDI participation is allowed to the extent of 49 percent
of the paid-up capital of licensees. Therefore, under the current policy regime, there are, for foreign
direct investors, three broad categories of industries. In a few industries, FDI is not allowed at all; in
another small category, foreign investment is permitted only till a specified level of foreign equity
participation; and finally a third category, comprising the overwhelming bulk of industrial sectors,
where foreign investment up to 100 percent equity participation by the foreign investor is allowed.
The third category has two subsets – one subset consisting of sectors where automatic approval is
granted for foreign direct investment (often foreign equity participation less than 100 percent) and
the other consisting of sectors where prior approval from the FIPB is required.

Entry and Establishment

Currently, foreign investors are allowed to set up a liaison office, representative office or wholly or
partially owned subsidiary (or joint venture) in India. Here we discuss the entry restrictions and
the changes in the regulations governing FDI (defined to include all investment where foreign
investor owns greater than 10 percent of the paid-up capital of a company registered in India). The
Statement on Industrial Policy (Government of India, 1991), made FDI in 34 industries (listed in
Annex III of Statement on Industrial Policy, 1991) eligible for automatic approval up to a foreign
equity participation level of 51 percent of the paid-up capital of a company. The automatic approval
was, however, conditional on the requirement that capital goods import be financed out of foreign
equity inflow and dividend repatriation be balanced by export earnings over a period of time
(though the time period was not stated in the Policy Statement; these restrictions, moreover were
further liberalized subsequently). The new policy (announced in 1991) was far more liberal in
comparison with the then existing Act, FERA, that limited foreign equity participation to a
maximum of 40 percent, except in very few special cases. The policy revision, therefore, was more
important in terms of the change in the level of control allowed to foreign firms over their Indian
operations. The FDI policy has undergone a number of changes over the 1990s, with a further
expansion of the list of industries eligible for automatic approval up to 51 percent foreign equity
participation and a general movement towards further liberalization of the foreign investment
regime. Without going into an enumeration of these changes, we are studying in somewhat greater
detail the policy regime governing foreign investment, as it existed in August 2001.

Registration Procedure

Foreign investors setting up operations in India have to register themselves with the Registrar of
Companies (just like domestic investors). Tax holidays and other such special incentives are
available for investment in certain sectors (like infrastructure projects), but these policies are
sector specific and also apply to domestic investment in the relevant sectors. Incentives have been
rule-based to a large extent (the most important incentive was perhaps the grant of ‘guaranteed
return’ at excessive levels to the ‘fast track’ power projects promoted by foreign investors in the
early 1990s; such policies were, however, discontinued after series of protests by civil society and
litigation in courts). However, lobbying (both by domestic interests opposed to entry of foreign
firms and by foreign firms willing to invest in the country) has played a role in setting the
rules/policies regarding entry of foreign firms. Notable among them being the intense lobbying that
was witnessed when the telecom or insurance sectors were being opened.

Special Provisions

In addition to the general policies on FDI, certain special provisions have been made for direct
investment by NRI and Overseas Corporate Bodies (OCBs), where NRIs hold at least 60 percent
equity. For example, NRI/ OCBs are allowed to invest up to 100 percent equity in air taxi operations
and civil aviation, where the general limit for FDI is 40 percent 27 NRI investments are also allowed
in housing and real estate, where general foreign investors are not allowed. NRI investment in
housing/real estate, however, carries restrictions of a 3-year lock-in period for the investment and
a limit of 16 percent on dividend repatriation. Further, NRI investments are allowed in sick
industries, for the purpose of their revival.

Investment Facilitation Initiatives/Institutions

The Government has also taken steps to smoothen the process of investment facilitation. The
Industry Ministry website of Government of India has all relevant information regarding the
policies and restrictions on FDI. Approval (where one is required) is granted through the single
window facility, through FIPB – where foreign investors can send proposals to FIPB for approval
even through the Internet. The status of any application is conveyed within 30 working days (the
status can be either accepted, rejected or ‘put on hold’, which implies that the FIPB could not
resolve the issue in its meeting). However, investors also need to get other statutory approvals,
including environmental clearance, clearance for land acquisition (many of these clearances are
given by the state government departments) and approvals from sectoral regulatory agencies (like
Insurance Regulatory and Development Authority for insurance, Telecom Regulatory Authority of
India for telecom services, Telecom Evaluation Committee for telecom equipment etc.) if the
investment is made in those sectors. These statutory clearances are, however, required for
domestic investors as well. It is often argued that the procedural impediments faced by foreign
investors in getting these clearances from different levels of bureaucracy is acute, but it needs to be
realized that these hurdles adversely affect domestic investments as well.

Policy Regime: the Reality

At present, the entire FDI policy and procedures, as notified by the government from time to time,
are duly incorporated under Foreign Exchange Management Act (FEMA) regulations. Many of the
entry conditions had greater justification at the time they were imposed. With a much stronger and
more competitive economy many of these can be removed. To increase FDI flows, the Steering
Committee has recommended that the entry barriers to FDI should be further relaxed (see Table
14).With regard to policy regime, the committee has recommended the following:

Enact a Foreign Investment Promotion Law (FIPL) that incorporates and integrates aspects
relevant to promotion of FDI.

Encourage states to enact a special investment law relating to infrastructure to expedite all
investments in infrastructure sectors.

FIPB should be encouraged to give initial central level approvals wherepossible.

Change government’s Rules of Business to empower FIIA to expedite the processing of

administrative and policy approvals.

Sectoral FDI caps should be reduced to the minimum and entry barriers eliminated.

To attract FDI, the broad approach should be one of targeting specific companies in specific sectors.

The informational aspects of the strategy should be refined in the light of the perceived advantages
and disadvantages of India as an investment destination.

The Special Economic Zones (SEZs) should be developed as the most competitive destination for
export related FDI in the world, by simplifying applicable laws, rules and administrative procedures
and reducing red tape levels.

Domestic policy reforms in the power sector, urban infrastructure and real estate, and de-
control/de-licensing should be expedited to promote private, domestic and foreign investment.
 Conclusion
With the initiation of the economic reform process in 1991, India also started to open up her
economy and now India has stepped into a liberalised foreign investment regime. This is definitely
a positive development. Rising and continuous inflows of FDI could promise a variety of potential
benefits to India. Apart from providing a relatively stable and growing source of finance, FDI
inflows could impart positive impact in India though various channels like:

(a) FDI inflows can raise domestic investment rates in India if its mode ofentry is “greenfield”
investment;

(b) FDI can promote technology spillovers;

(c) Export-oriented FDI can play an important role in the process of exportled industrialisation in
India; and

(d) FDI can enhance the marginal productivity of the capital stock in the Indian economy and
thereby promote growth.

Though the Government of India has been trying hard these days to attract FDI, FDI inflows into
India (as a share of GDP) have been much more modest than many other developing countries.
India’s glaring failure obviously warrants introspection. In this context, this report has attempted to
study the investment regime and actual performance of India with a view to build capacity and
awareness in investment issues and draw out the lacuna of the present system. The study is based
on the existing literature along with the feedback obtained from the surveys of stakeholders,
namely civil society groups and local firms. The following points have emerged from this report:
India now has in place a liberal policy regime towards FDI. Though it has done well in attracting FDI
flows of late, given her size, India attracts only small amounts of FDI flows. This is the general
opinion of all the stake holders. Most of the FDI flows have gone to the IT industry, automobile,
chemicals and power sectors. The government is working on ways to double FDI to over $8bn in a
year. The Steering Committee on FDI has proposed a number of measures to attract more FDI.
These include opening up of new sectors for FDI, reforming sectors like power to bring in functional
market structures and easing procedural hurdles. The idea is to identify sectors with vast potential
to woo FDI and fix specific targets. The Steering Group has advocated that a Foreign Investment
Promotion Law (FIPL) be enacted to incorporate and integrate aspects relevant to promotion of
FDI. It has also suggested that the informational aspects of the policy strategy should be refined in
the light of the perceived advantages and disadvantages of India as an investment destination. The
biggest stumbl ing block is India’s bloated bureaucracy. Approximately, only 20 percent of FDI
approvals translate into actual investment. This implies that the initial enthusiasm to invest peters
out by the time companies actually go through the process. According to investor’s feedback,
environmental clearances and legal work are still time-consuming.