Over the past twenty years, the business environment in India throughout its 28 states and 7 union territories (UTs) has improved dramatically, in what is termed the post-reform era (since July 1991).
The legal framework is being liberalized considerably towards creating a conducive climate for growth in almost all sectors, with the energy sector getting top priority. However, although infrastructure has been strengthened with concrete action plans, there is still plenty of scope for improvement which requires large foreign direct investments.
The Indian economy is amongst the fastest growing economies of the world. It is the 11th largest in terms of nominal GDP and 4th largest by purchasing power parity, with a large pool of human and natural resources and a growing pool of skilled professionals.
According to the Economic Survey for 2010-11, 57.3 percent of the Indian GDP comes from its service sector, 28.5 percent from the industrial sector, and 14.2 percent from the agriculture sector. The industrial sector employs 14 percent of the total labor force of half a billion, and the services sector 34 percent. Significantly, there has been no significant impact of the recent global economic crisis on the Indian economy, as evident from the private savings rate having remained ‘sticky’ in the range of 30.1 percent to 31.9 percent during the past six years.
The above survey indicates that there is still plenty of room for economic growth in India. A recent study from Goldman Sachs forecast that India could grow economically at a sustainable rate of 8 percent until 2020. To fulfill the investment needs for infrastructure under the public private partnership (PPP) policy of Indian States, Korean direct investment can play a significant role. For instance, in the state of Haryana, foreign direct investment (FDI) is still minuscule against its potential. It is pertinent to note that the Indian government has declared 2011 as the ‘Year of Korea’, indicating the intention of strengthening relations between the two nations. The FDI policy concerns in India were made evident in the Indian budget speech for 2011-12 by the Indian finance minister on Feb. 28, 2011.
The Fiscal Responsibility and Budget Management Act, 2003(FRBM Act) and corresponding acts at the state level show that statutory fiscal consolidation targets have a positive effect on macroeconomic management of the Indian economy. To make the FDI policy more user-friendly, all prior regulations and guidelines have been consolidated into one comprehensive document, which is reviewed every six months. The latest review was released in September of2010, with the specific intent of enhancing clarity and predictability of Indian FDI policy to foreign investors. Discussions are underway to further liberalize this policy.
Foreign institutional investors (FII s) are now allowed to invest in mutual fund schemes. To liberalize the portfolio investment route, it has been decided to permit SEBI registered mutual funds to accept subscriptions from foreign investors who meet the KY C requirements for equity schemes. This would enable Indian Mutual Funds to have direct access to foreign investors, thereby widening the class of foreign investors in the Indian equity market. To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds, with a residual maturity of over five years issued by companies in the infrastructure sector, is being raised by an additional limit of US$20 billion bringing it up to a limit of US$25 billion. This will raise the total limit available to the FII s for investment in corporate bonds to US$40 billion.
Since most of the infrastructure companies are organized in the form of SPVs, FII s would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FII s will be allowed to trade amongst themselves during the lock-in period.
There is a possibility of a Special Economic Zone for Korean investments in Haryana based on the pattern of Gujurat which is essential for making Haryana conducive for industrial development.
This state’s New Industrial and Investment Policy has been announced recently and has certainly raised high hopes for its future growth. The special focus on the agricultural and food-processing sector, which includes a number of incentives such as a reduction in stamp duties, change of land use charges for units established
in undeveloped areas, and exemption of market fees on fruits and vegetables, has been well received.
Additionally, there is potential for developing Haryana as a tourism hub by giving it the status of industry which possesses the highest employment multiplier potential with direct and indirect employment. A strong case can be made towards urging every foreigner who visits India to visit the state of Haryana.
Housing in India and elsewhere in the world, including Korea, falls under the domain of human resource development (HR D),which is essential for sustainable development. The Government of India is playing an important role in shaping policies and programs related to housing in the country as a whole. Apart from deciding national policy issues, the central government is also allocating resources to state governments through various centrally-sponsored schemes and providing finances through national financial institutions throughout the country. The total housing shortage in India has officially been assessed as 24.71 million dwelling units for 67.4 million households, where 98% of this shortage was in the low income and economically weaker sections (EWS) segment. India needs to learn from the housing construction expertise of South Korea, which is well-equipped with technology and trained manpower. India also needs to be cost effective and environmental friendly in all aspects of housing development in both urban and rural areas.
For reducing the incidence of crimes of various kinds in India, there is the need to replicate Korea’s policy of CCTV camera installation that has been proven effective in reducing lawbreaking, such as it has in Seoul.
The subway metro travel system in Seoul, known worldwide for its operation and commuter efficiency, is also something that India can benefit greatly from by adopting its standards and principles to its own urban centers. Korea also has earned worldwide recognition for its excellence in IT and hardware manufacturing. As India is known for its software engineering, it is this writer’s humble opinion that these two great nations can certainly create a win-win situation by joining hands and exchanging experts and technical skills of hardware and software to grow together. With the tremendous potential mutual advantages of strengthening economic relations between India and Korea having been recognized by these countries’ leaders, the future looks bright indeed.