Unleashing the tiger | KPMG | GLOBAL

Unleashing the tiger

Unleashing the tiger

At the city, state and national level, India’s governments are pulling out all the stops to encourage investment.

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Tiger watching through a hole

It has been just three years since Prime Minister Modi’s announced the Make in India campaign and Foreign Direct Investment (FDI) has jumped by almost 70 percent. At the city, state and national level, India’s governments are pulling out all the stops to encourage investment.

When Prime Minister Modi came to power in 2014, India’s rapid economic growth seemed on fragile footing. The global recession had reduced foreign investment into the BRIC countries and there were growing concerns that India’s booming economy may sputter as investors shifted to safe-haven markets.

At the time, the Make in India campaign looked ambitious. More than just another advertising campaign, Modi’s government aimed to institute significant regulatory reform in a massive effort to reduce red tape and attract new foreign investors into key industry segments including railways, defense, insurance and medical devices.

As Mr. Deepak Bagla, Managing Director and CEO of Invest India, boasts, “India has been successful in transforming the notorious red tape into a red carpet. More than 1,200 obsolete laws have been repealed. And a Business Reform Action Plan has been rolled out in an effort to enhance the ease of doing business and to help annually rank States since 2015.”

Removing the thorn of regulation

At the same time, Invest India was set up as the first point of reference for potential investors. “India has a multi-tiered federal structure of governance, which adds a certain degree of complexity in starting and running a business,” says Mr. Bagla. “Invest India provides sector and state-specific inputs, as well as ‘hand-holding’ support to investors through the entire investment cycle. We are the first point of reference for potential investors.”

To simplify the investment process, the government has also launched a single window government-to-business portal known as eBiz. The portal provides online access to core services needed to obtain the necessary clearances, licenses and complete mandatory tax registrations, as well as composite application forms for around 20 Central services and several State government services.

Many State governments have also instituted single window clearance mechanisms. The Government of Andhra Pradesh, for example, has created a single window process for more than 55 different approval requirements, with a goal of delivering clearances within twenty-one days of application.

“Twenty-one days is the outer limit,” says Solomon Arokiaraj, Secretary of Industries and Commerce for the State of Andhra Pradesh. “There are 10 clearances that can be delivered ‘on the spot’. And there is another class of services which get cleared within seven days. In the past, it took between 60 and 90 days to get these clearances. Today, around 80 percent of them are cleared within seven days, and close to 98 percent within twenty-one days.”

Paving the road to investment

While reform has been a key tenant of Prime Minister Modi’s ambitious plan, the Central and State Governments are also keenly focused on providing the right infrastructure to support India’s industrialization goals.

“India is creating world-class Infrastructure in roads, railways, air and shipping sectors,” notes Mr. Bagla. Some schemes, like the Delhi-Mumbai Industrial Corridor are focused on improving national infrastructure and improving industrial connectivity across the country. “But we also need to create and augment dedicated export infrastructure to sustain and accelerate this growth,” he adds.

In Andhra Pradesh, these initiatives and investments are helping drive further investment at the State level. “We see the industrial corridor development approach as the key to attracting new investment,” explains Mr. Arokiaraj. “On top of the funding provided by the Asian Development Bank, the State Government is also chipping in another US$215 million to improve infrastructure, create logistics parks and enhance water and power supply.”

Over the next few years, Andhra Pradesh plans to develop eight new ports and six new airports to improve connectivity and encourage export growth. The State will also develop seven new industrial ‘nodes’ along the planned Industrial Corridors, as well as a number of sectoral ‘zones’ focused on 10 priority sectors (such as automotive, aerospace and defense, electronics and textiles). 

The tiger roars

By all accounts, these government initiatives are paying off. In Andhra Pradesh, for example, the State has attracted new investments from a number of major auto parts suppliers and at least two major automotive OEMs, Isuzu and Kia Motors. “Kia Motors and their subsidiaries are investing almost US$2 billion into our State to set up an ultra-mega integrated automobile project,” boasts Mr. Arokiaraj “It’s one of the largest Foreign Direct Investments India has seen over the past few years.”

The State has also gained significant accolades for its efforts to improve the investment climate. It was named ‘State of the Year’ by CNBC; it was ranked first in India for Ease of Doing Business; and it was recognized as the top destination for private foreign investment in 2016. “Foreign investment is flowing into the State,” Mr. Arokiaraj adds.

India’s Central Government is also receiving very positive feedback and increased investment from its initiatives. “Our Strategic Partnership Model for the Defense sector is encouraging collaboration between Indian firms and foreign OEMs, creating an estimated US$335 billion in potential defense projects,” notes Mr. Bagla. “The Phased Manufacturing Program (PMP) is estimated to increase mobile manufacturing in India to 500 million units by 2019, of which 120 million phones are likely to be exported.”

Of course, the most important proof is in the national numbers. According to a recent press release by the Ministry of Commerce and Industry, FDI inflows jump to US$60 billion in 2016–17 from US$36 billion in 2013–14. Over the past three years, the country’s manufacturing sector enjoyed growth of 14 percent over the previous 30 months.

As the Make in India campaign notes, “Today, India’s credibility is stronger than ever. There is visible momentum, energy and optimism. Make in India is opening investment doors. The world’s largest democracy is well on its way to becoming the world’s most powerful economy.”

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