What makes India a priced Investment Destination?
Before 1991, India was an extremely protected and closed economy. Heavy customs barriers and tariffs prevented direct foreign investments in India. This was due to the nationalists and socialist ideals of the Indian freedom movement and its leaders, according to which the country functioned since independence from Great Britain in 1947.
Until 1991, there were no imported products or even private TV Channels in India. People had to wait for the months or even years to get a telephone connection or even buy a locally made car. Even the private Indian firms were heavily controlled by the government through administrative measure and red tape called the ‘ Licence Raj’ in local parlance. The goods and services were so scarce and of such a bad quality that people craved to acquire foreign goods like Levi’s jeans, radios and calculators. There were no good dolls for the babies in the market and even the clothes sold in the market were of poor quality. Besides, Indians travelling aboard had the right carry only a very limited foreign currency and if by chance there remained any foreign currency on their return, they were bound to restitute it to the reserve Bank of India and encash the equivalent in Rupees.
But in the year 1991, the Indian government became highly indebted. Pressured by the IMF, it decided to open up or liberalize the economy and allow foreign investments gradually in various sectors of the economy. This because the socialist model followed until then by the Indian government failed to solve the accumulating economic problems like budget deficit, unemployment poverty and stagnating growth.
Liberalization meant the lowering or removal of various customs and tax barriers and tariffs, a progressive opening of the Indian market to foreign investment and goods. It also implied the modernization of the financial sector and fiscal adjustments.
With liberalization, Coca Cola, Levi jeans and many other foreign products like the French cosmetic products Oreal have become omnipresent in India. The old Indian made Ambassador car has given way to dozens of new models of cars made in India itself by foreign entrepreneurs ranging form the Japanese to the Americans. There is no need of waiting for a long time to buy a car or any other product like refrigerator or washing machine. Besides, Indians could travel now to any part of the world on holidays or otherwise without worrying about the amount of foreign currency in their possession.
With the opening up of the economy, Most Indians feel that they have a greater choice of products and that too of a goods quality. Today the people are obsessed in buying foreign goods of all sorts ranging from cloths to cars just in order to show off their wealth whereas earlier they bought them in order to use them as Indian made goods were of poor quality. There are many others who feel that the economic boom has resulted in a lot of corruption at all levels of public life and has created new social problems especially for the under- privileged people like the tribes and the lower castes. So they are nostalgic of the economic nationalism of the bygone era.
With more and more sectors of the economy thrown open for foreign investment, the rate of growth for the past twenty years has been above 6%. But there is a slowdown of the economy since last year. However, the World Bank has claimed that poverty had receded in India, though still 37% of the population lives below the poverty line. This figure is still very high when compared to many emerging countries in the world like Brazil. It is also claimed that the literacy percentage in the country has gone up to about 65% of the total population of the country. There is also less unemployment as more jobs were created due to foreign investment especially and also outsourcing, as is the case in the information technology sector.
Thus the opening up of the Indian economy seems to have created a new optimism among many Indian, who thinks that they are at last on the road of progress and will catch up sooner or later with the developed countries. But there are some others who think that the opening up to foreign investment is eroding India’s sovereignty and independence and subjecting the national economy to international finance. Some even claim that economic performance cannot be equated with GDP growth.
With the victory of the Hindu nationalist party called the BJP in the general elections held in May 2014, there seems to be lots of optimism in the air with regard to further opening up of the Indian economy and foreign investment. In fact, the new government had taken steps to further the liberalization reforms and attract more foreign investment in various sectors. Nevertheless, it is prudent to wait and see what the economic policies of the new BJP government will produce and how it is going to impact on investment in India.