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2 months ago
What economic restrictions does India have in place?
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Business and Its Environment
Edition: 7th
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Business and Its Environment
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Despite the economic liberalization, restrictions remained in some sectors. The government had relaxed many of the restrictions on foreign direct investment (FDI), and FDI had increased from $8.28 billion in 2003 to $29.4 billion in 2011, but that was down from its peak of $41 billion in 2009. Unrestricted FDI was allowed in most industries, but was restricted to minority ownership in several industries, including insurance, print media, and air transportation. FDI was allowed up to 74 percent in banking, telecommunications, coal and lignite, mining, and airports. The limits were often binding.
Other regulations restricted the growth of foreign companies. For example, foreign banks were required to obtain approval from the government for each branch they sought to open. FDI was still banned in four industries: retail trading (with the exception of single-brand retailing), atomic energy, lottery business, and gambling and betting.
India's impressive economic growth rate stood in contrast to the effect of regulations, permits, and licenses on new business. The World Bank Doing Business 2011 report ranked India 134th of 183 countries in the ease of doing business. India was near the bottom in the categories of Starting a Business, Dealing with Construction Permits, Paying Taxes, and Enforcing Contracts. The rankings were based on both costs and the time required, for example, to obtain a permit.
The restrictions on retailing reflected the potential threat to small shops and stall retailers. An estimated 30 million Indians were employed in retailing, and the government feared that lifting the restrictions could drive many of them out of business. Foreign retailers were banned from using FDI for direct sales to individuals, and multi-brand retailers were barred from owning and operating their own stores. Foreign retailers could make franchise arrangements, however, with local retailers, but India had few large retailers. Foreign retailers could also establish joint ventures.
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