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Monday, 30 June 2014

Is Indian Economy Really Liberal

The Indian economy is world's third largest economy in terms of purchasing power parity has been gradually undergoing from a rigid framework to a liberal one. Though India signed for liberal state of economy almost 25 years back, but still red-tapism and stringent economic policies are the roadblocks in the path of economic development, especially in the inflow foreign investment. To meet the pace of global economy there is an urgent need of fresh reforms in the trade and investment policies. Easing of restrictions on foreign investments and promotion of multi-lateral trade policies will be helpful to overcome the reluctance of foreign businesses. India which was a favorite business destination for global investors has somewhat lost its luster in the last two years.

 Political instability and fluctuations in currency exchange rate accompanied by rigid taxation system further aggravated the declined interest of overseas businesses in India. Now, it is the prime responsibility of the Narendra Modi's led NDA government to form healthy policies with the help of the Reserve Bank of India and FIPB and restore the interest of foreign businesses in the Indian market. FDI in India is permitted through some set rules and in a free economy which runs on open market operations too many restrictions just kill the interest of foreign investors. Developed countries wants to curtail entry level trade barriers and annoying long formality procedures. The question arises why sectors like agriculture, retail and banking are not allowed for 100 percent foreign investment.

The toughest issue for majority of foreign investors is long list of government approvals like industrial licence. Foreign investors planning to set up business in India have only two routes to follow, either to set up a separate corporate entity in India or incorporating an Indian company. The secondary issue is that in India foreign investors inhibit to move in a pro-active manner due to the long and cumbersome dispute settlement mechanism by the court. Therefore, if the new government want to churn out maximum from the existing lucrative market of India, the government must devise for a second phase economic reform.

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