Context:

U.S. said that India remains a challenging place to do business while praising the structural economic reforms extended by India during the pandemic in its report titled ‘2021 Investment Climate Statements: India’.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources, Liberation and Planning of Indian Economy), GS-II: International Relations

Dimensions of the Article:

  1. Highlights of the ‘2021 Investment Climate Statements: India’ US report

Highlights of the ‘2021 Investment Climate Statements: India’ US report

Calling India a challenging place to do business

  • The removal of special constitutional status from the state of Jammu and Kashmir (J&K) and the passage of the Citizenship Amendment Act (CAA), 2019 are two decisions which are at the heart of policies that are bothering foreign investors.
  • Many Measures are being categorized as ‘Protectionist’ as several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment.
  • India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings, which does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. This BIT also accounts for being policies that are bothering Foreign Investors.
  • Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20% price preference to vendors utilizing more than 50% local content.
  • India remained on the Priority Watch List in the 2020 Special 301 Report due to concerns over weak intellectual property (IP) protection and enforcement.
  • India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.
  • There are other issues that restrict the expansion in bilateral trade.For example, sanitary and phytosanitary measures and Indian-specific standards not aligned with international standards.

Praising India’s Recent Economic Reforms amidst the Pandemic

  • In 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.
  • In 2021, Parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74% from 49%. It also announced plans to raise $2.4 billion through an ambitious privatization program that would dramatically reduce the government’s role in the economy.
  • In order to combat economic slowdown pertaining to Covid-19, the Government of India launched Atmanirbhar Bharat Abhiyan which envisages extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. Primarily, it aims towards cutting down import dependence by focusing on substitution while improving safety compliance and quality goods to gain global market share.
  • The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors.
  • The government of India passed Arbitration and Conciliation (Amendment) Act, 2021 to deal with domestic and international arbitration and defines the law for conducting conciliation proceedings.
  • The new labour codes announced by the government in 2021 target simplifying the country’s archaic labour laws and give impetus to economic activity without compromising with the workers’ benefits.

-Source: Business Standard

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