Foreign Direct Investments and Trade Policy in India

Abstract

India is a country that embraces foreign direct investments through trade policy. The issue of trade relations between the UAE and India is explicated through a series of topics, which border on the business environment, trade policies and agreements, recommendations and impacts of foreign direct investment. The method is based on the simple revelation of points concerning trade policies. The paper discusses the Indian relations with the UAE through providing an insight into their continued cooperation in regards to foreign direct investments. Some of the benefits are multibillion-dollar investments that improve the economic state of Indian and UAE nationals, as well as the world population, which relies immensely on both nations. India and the UAE are both world destinations for many products besides being producers for international consumers courtesy of their partnership under foreign direct investment agreements.

Foreign direct investment is the major financial source for non-debt types of businesses, which has contributed to common economic development in India. The countrys economy is widely known for its low wages and tax exclusions, and many foreign companies strive to invest in it just to take advantage of these factors. For this reason, India has been generating employment opportunities for its citizens and has continued to achieve the technical knowhow because of these foreign investments. The government has trade policies and a robust business environment that have ensured that there is a continuous flow of foreign capital and the availability of more investment opportunities. In recent years, it has taken many initiatives, like relaxing FDI regulations across such sectors as defense, stock exchanges, PSU, oil refineries, power exchange, and telecom among many more. Measures by the government to advance the mode of doing business and to relax foreign direct investment regulations have produced results in prospect. In the April-June period of 2017, the Department of Industrial Policy and Promotion realized the total FDI of US$ 14.55 billion. There is every indication that countrys investments may grow by 25 percent per year to the total of US$ 40 billion by 2025. India is an investment-driven country because it has progressive policies which border on foreign direct investments and relations with other countries.

 

Factors Encouraging FDI and Trade in India

The dynamics of the business atmosphere in India has enhanced foreign direct investment and commerce in the legal, political and socio-cultural perspectives. Factors encouraging this include the following:

Big labor force: India has significant labor force of almost 430 million making it a country with the largest index of it globally. A large percentage of workers can speak English, but receive relatively low wages, and this aspect has attracted foreign direct investment for the reason that the dichotomy of this section of employees has resulted in the dominance of relatively low labor costs, especially in labor-concentrated sectors of the economy.

Highly educated personnel: India has the largest number of students in higher education globally because of its momentous educational facilities with English being the primary language used for instructions. It indicates that most educated Indian employees speak and understand English.

Strong economic growth:the economy of this country has grown by over 7% in the last decades contributing towards making India the country with the fourth largest economy globally in terms of purchasing power parity. The overall income per capita has doubled since the mid-nineteenth century, when it was approximately $310, to almost $620 in 2004. By this nominal GDP method, Indias income per capita increased to almost $1,000 in 2007 caused by the expanding section of the middle class population who has a higher purchasing power.

Sustainability from institutions and access to capital: it is true that a great number of Indians are affected by poverty, and even though this feature may result in an unfavorable capital market, India has a vibrant banking system that contains deep inroads in its vast rural areas. Several programs meet credit needs of this part of the population. There are also several supportive institutional arrangements for promoting self-employment.

Favorable investment policies: the Forward Contracts Act of 1952 in India controls commodity trading through forward and future contracts, establishing the Forward Markets Commission to standardize the commodity market.

Dispute resolution: the Indian law recognizes the freedom of international contractors to choose the governing law, jurisdictions and the forum for settling disputes. These among other policies have liberalized and benefited a number of foreign direct investors in India.

Political Stability: the country has been experiencing political stability and is part of unions that ensure it in order to encourage foreign direct investment, a field that is known to contain an element of risk.

Exchange rates: weak exchange rates in India have contributed to many foreign direct investments because of assurance that multinational companies will purchase assets at a lower price.

Clustering effects: foreign companies have a tendency to be attracted to India, which is a country that has current foreign direct investment from external economies of scale, transport links and sections where there is the growth of service industries.

Rates of tax: as opposed to other countries, India has a favorable tax policy in regard to foreign investors. It forms a major incentive that attracts many companies to invest in the country.

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Trade Policy of India

India has steadily replaced licensing and regulatory discretion regarding imports with simpler deregulatory procedures. The Open General License (OGL), which is a required parameter of the trade Exim policy, puts trade under check with imports excluding illegal and restricted items that require import accreditation and canalized items that can only be sourced by trading monopolies of the government. India possesses a foreign direct investment policy that gives direction how investments can be executed. It requires two methods to be followed, with the first one being the automatic route where a foreign investor or an Indian company can make any investment without having to get an approval of the government or the Reserve Bank. In regard to the government policy, any Indian corporation or foreign shareholders must be accredited by the Indian government, promotion boards, and the Ministry of Finance.

It is unlawful to engage in foreign direct investment in India if the corporation or the partnership deals with the manufacture of cigars, cheroots, cigarettes or any tobacco-related goods. Other activities include retail trading and lottery businesses. The Indian customs tariff structure and fees system is a complex one, mostly described as lacking transparency in terms of deciding on net effective rates of duties, custom tariffs, and other fees. This levy arrangement is composed of a special added duty that forms 4% and ad valorem duty imposed upon all goods sourced from other countries apart from the duty, which is in tandem with the official customs notice, an additional duty applied to all imports, but not to alcoholic products.

Trade Agreements between the UAE and India

India and the UAE have lately signed a significant protection agreement on investment, the Bilateral Investment Promotion and Protection Agreement (BIPPA). It is anticipated to boost the UAE investment to $2 billion into Indian infrastructural projects. Other nine agreements cover cooperation in currency swap, insurance supervision, renewable energy, culture, cyber security, commercial information sharing, investments in the infrastructure sector, space research, and skill development fields. They are a way of strengthening the relations between the two countries. The Contract on Comprehensive Strategic Partnership exposes sections of cooperation, the Memorandum of Understanding (MoU) that links the Ministry of Defense, India, and the one of the UAE in the defense industry, technology, and manufacturing. The MoU in relation to institutional cooperation in the sector of maritime transport has enhanced common maritime trade ties. Finally, the MoU on relaxing entry visa requirements to diplomatic, special, and official passport holders enables them to travel freely between India and the UAE.

Recommendations on How to Improve Trade Policy in India

The following measures are necessary to improve trade policy:

Policymakers of India should create a better environment for the development of infrastructure to have an appropriate institutional framework like an independent regulatory authority, dispute resolution system, and a special investment law.

The country should revisit those out-of-date regulatory systems, laws, government dominations, and controls that affect investments.

Recommendations on What India Could Do to Further Encourage Foreign Direct Investment

To encourage foreign direct investment, India can take the following steps:

The Indian government should include some initiatives, such as improving infrastructure, restructuring the labor law, and revisiting the law that guides the process of the re-acquisition of land.

Governmental policy-makers should increase FDI caps, especially in those areas that have the FDI potential and permit some sectors to be under the regular approval route of the country to decrease difficulties in investing in their country.

Six Positive Impacts of Foreign Direct Investment on India

India has the following outcomes of foreign direct investment:

Global incorporation: India has been inviting foreign direct investments for a very long period, gaining a greater foothold in the global economy by free access to the wider worldwide market.

Technology: because of foreign direct investments, the world-class technology together with the technical knowhow leading to upgrading existing technical processes has been introduced in India.

Competition: there has been increased competition in the domestic economy of the country brought by technological advances. It has forced other companies to improve their technology, products and processes to stay in the competitive market.

Human resources: because of foreign direct investment, Indian employees have been exposed to globally valued skills through training and skill-up gradation that has enhanced the value of countrys human resources.

Increased savings: foreign direct investments create a necessary condition for economic growth, filling saving gaps in developing countries.

Employment: multinational corporations avail job opportunities in the country brought about by foreign direct investment that requires labor, which is then provided by Indian citizens.

Conclusion

There has been gradual liberalization of the Indian foreign direct investment policy to turn the market into a more investor friendly one, and there have been good yields. Foreign direct investment has had a positive impact on the economy of the country, which possesses a remarkable potential enhancing the domestic capital together with skills and technology of present companies and has helped to institute new companies contributing to the economic growth of the country. Additionally, India itself possesses different aspects that have created an environment conducive for foreign direct investment, making it one of the most sought destinations by multinational corporations and companies in the world.

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