India needs time to digest new reforms to attact foreign direct investment

Introduction of GST, demonetisation has made investors hesitant

Atul Pandey, an associate partner at an Indian law firm Khaitan & Co, talks about the foreign direct investment climate in India.

QWhat is the FDI situation like in India at the moment?

AIndia is expected to create a new record by surpassing the US$60 billion FDI received in 2016-2017 (financial year). This is because of the FDI liberalisation and various positive reforms undertaken by the present Indian cabinet. This record could have been even better, but due to some uncertainly in the investment regime in view of major macroeconomic reforms undertaken such as the introduction of insolvency laws, simplification in the approval of foreign investment regime and implementation of the goods and services tax, over a short span of time, foreign investors have become hesitant in their India investment plans. 

What other factors are impacting investment?

In addition, the market is still adjusting to the two major changes brought in the by the government over the course of past year – demonetisation and the introduction of the goods and services tax.

What are the challenges?

Post the introduction of a revised FDI regime, the regulators are gradually getting used to the new regime, and therefore, the approval rate for FDI matters has gone down. We expect speedier approval of FDI matters once regulators get used to the new regime.

Are steps being taken to make FDI easier for investors?

On a positive note, the government is actively trying to put more sectors in the automatic route, as a consequence of which it is expected that more FDI shall flow in through those sectors which are under the automatic route, which does

not require prior approval from the government.

What needs to be done now to encourage more Indian and foreign companies to invest in India?

The government will have to take further steps to smoothen the implementation of the GST and other macroeconomic affairs introduced last year, to regain investor confidence. The government will also have to resist from repeatedly changing laws related to foreign exchange, corporate governance and tax, in order to bring certainty to the market.

And are there other major
issues that companies want to be addressed?

The government will also have to take a closer look at resolving corporate taxation issues and reforming the cumbersome labour laws that plague most industries.