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By Elizabeth Pisani
886 words
8 July 1988
Reuters News
(c) 1988 Reuters Limited

NEW DELHI, July 8, Reuter - India is being nudged gently into opening up an investment "fast track" to make life easier for foreign businessmen, but diplomats and economists say political constraints may keep progress slow.

"India is starting to worry that it will miss out on the boom that foreign investment has brought to South-East Asia," said economist Sumitra Chishti of Delhi's Jawaharlal Nehru University.

She said the lure of foreign investment, its ability to generate growth and resources without showing up as a liability on the nation's balance sheet, was beginning to sway Prime Minister Rajiv Gandhi. But it would be a slow process, she added.

The first glimpse that the foreign investment climate in India might be easing came when Gandhi visited Japan in April and promised to slash through the red tape which has strangled so many projects in the past.

Gandhi repeated the promise to West Germany in June. But already there were signs that he was being reined in by socialist critics in his Congress (I) Party who complain he favours big business.

"Gandhi went off to Japan and promised a fast track. But in Germany he was already qualifying it -- 'Within the framework of our existing rules', that sort of thing," Chishti said.

In its quest for self-sufficiency, India has long relied on aid or commercial borrowing for its capital needs.

Foreign investment stood at just 1,070 million rupees (76.4 million dollars) in the financial year ending last March 31, down from 1,261 million (90 million) a year earlier. Investment in China for the same period was almost 25 times that.

Chishti says she believes the back-pedalling seen in West Germany is a result of India's rambling democracy.

"Gandhi wants to be re-elected, and the entrepreneurial class is an important power base. They don't want to be dominated by outsiders, so he can't be seen to move too quickly," she said.

"The changes promised so far are no more than procedural."

But in bureaucratic India, where initiatives both foreign and domestic have been known to drown in paperwork, genuine procedural changes might be enough to bring the money in.

A West German diplomat in Delhi said administrative hurdles often discourage small and medium-sized foreign firms looking to set up in India. "They simply can't afford to spend two, three, four years waiting for approval," he said.

Nowhere is this more true than in the pivotal field of high technology, where products become outdated even as forms are being filled out in triplicate.

Keen to hustle along the transfer of technology, Gandhi has pinpointed this field for special attention, even allowing it to wriggle out of a 40 per cent limit on foreign equity holdings.

Gandhi's looser stance on that area alone has prompted Western minds to look at India as a potential market for a whole range of sophisticated goods.

"There is a new perspective on India from a German point of view. We're no longer seeing it in terms of the old stereotype of rural poverty," the diplomat said.

"The Indian domestic market is highly attractive to any investor, but especially to countries like Japan and West Germany, flush with funds and looking for outlets other than their own highly developed markets," Chishti said.

Japanese joint ventures in India crept up to 111 in 1986/87, just three more than a year earlier. The strong yen, which made equipment more expensive, sent investment in rupee terms down to 6.15 million (0.44 million dollars) from 15.67 million (1.1 million) over the same period, Indian figures show.

At the same time, Japan agreed to pour 210 million dollars into China.

"The Indian government is making a great effort to reduce constraints, but gradually. It is not yet very clear what effect this will have on Japanese firms," said a Japanese diplomat.

"We still look at the investment climate relatively, comparing it to that in other Asian countries."

While increasing capital inflow by direct investment is the proclaimed order of the day, economists say the overtures to Bonn and Tokyo may have been made with one eye on aid.

West Germany gave India a total of 469.7 million marks (261 million dollars) in technical and development aid in 1987/88. Japan doled out 100.616 billion yen (745 million dollars), more than any other country.

But there is a threat of political retaliation from within if the government shows signs of adopting a looser attitude towards foreigners than to Indian investors.

"Indian businessmen look on the fast track as something that should be relevant to everyone, Indians included," said D.H. Panandikar, head of the Federation of Indian Chambers of Commerce. "The government has to be seen to mean business."

With an election due before the end of 1989, the governemt would do well to extend the benefits of the fast track to Indian businessmen soon, another economist said.

"We expect things to move one step at a time, but in the end the government has to make sure that what is good for the Japanese and West Germans is also good for the Indian electorate," he added.


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