India Seeks to Attract Foreign Investments with Protection Guarantee

The Indian government has taken a crucial step in its effort to attract more foreign investments by sending a draft agreement to the United States, guaranteeing protection to foreign investors. This move follows a similar agreement signed with Britain to promote and protect investments in both countries. The Indian government aims to strengthen its economic reforms, with the US being its largest trading partner. The draft agreement will also be followed by similar pacts with Germany, Singapore, and Japan.

Key Takeaways:

• The Indian government has sent a draft agreement to the US, guaranteeing protection to foreign investors, in a bid to attract more investments.
• The draft agreement is on the lines of the Indo-British agreement, and will be followed by similar pacts with Germany, Singapore, and Japan.
• The US is India's largest trading partner, supporting its economic-reform program, with new US investment representing over 42 percent of the more than $2 billion approved by the Indian government last year.
• The agreements are a countervailing guarantee by India, which investing countries want as a protection, and under which the Indian government will have to bear the liability of easily repatriable compensation if it decides to force down the shareholdings in Indian companies of nationals and entities belonging to the signatory country.
• The government has dismantled import and foreign-investment barriers, reduced tariffs, and removed licensing controls since 1991.
• The Indian law that prevented foreign firms from owning a majority stockholding in their Indian subsidiaries until 1992 is expected to be revised, with a proposal to allow automatic approval for foreign equity up to 75 percent from the present 51 percent.
• The Indian government's decision to allow automatic approval for foreign equity up to 75 percent is expected to attract more foreign investments and boost economic growth.

Statistics:

• Over 42 percent of the more than $2 billion approved by the Indian government last year was invested by the US, making it India's largest trading partner.
• The US is expected to remain India's largest trading partner in the coming years, with the potential for increased investment and trade.
• The Indian government is planning to allow automatic approval for foreign equity up to 75 percent from the present 51 percent, which is expected to attract more foreign investments.

Sources:

• The Observer of Business and Politics