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Indian federalism deters foreign direct investment

Rohit Sachdev, J.D./M.B.A. Candidate, Columbia University School of Law, Columbia University Graduate School of Business, 2006

(“Comparing The Legal Foundations Of Foreign Direct Investment In India And China” 2006 COLUM. BUS. L. REV. 167)
Second, and equally concerning, is the large gap between the annual amounts of FDI approved in India, and the inflows eventually realized. Between 1991 and 2000, only 35.8% of approved FDI resulted in actual inflows to India. 117 The realization rate in 2001 proved somewhat higher, at 45% of FDI approvals. 118 Accordingly, this suggests the existence of one or more of the following circumstances: Indian approval processes that frustrate or deter investors from ultimately executing investments; post-approval inefficiencies, perhaps at state or local levels; or corruption at points outside the regulatory framework that impede realization of capital inflows.Indeed, surveys of foreign investors in India confirm that inefficiencies in the investment approval process constitute a substantial obstacle to seamless investment flows. 119 As cited in the Planning Commission Report, studies performed by the Boston Consulting Group, McKinsey, and A.T. Kearney determined that investors were significantly deterred by the bureaucracy and inefficient procedural hurdles involved in the application and approval processes. 120 For example, a Confederation of Indian Industries study cited by the Planning Commission Report found that a typical power project in India required forty-three central government clearances and fifty-seven state and local government clearances before commencing full-scale operations. 121 The report concluded: "The precise reason for the low levels of realization is the post-approval procedures, which has in the past played havoc with project implementation ... the delays ... are not at the stage in FDI approval per se ... [but] at the state level, as project implementation takes place at the state level." 122 Further analysis of the procedures seems to suggest that this conclusion is correct and in fact compels further inquiry into India's reliance on a federalized approval process.

Indian Federalism Bad: Economy Impacts

India is key to the global economy

eTurboNews 2008

(Hazel Heyer, “China, India play key role in global economic meltdown”, May 7, http://www.eturbonews.com/2414/china-india-play-key-role-global-economic-mel)

DUBAI, United Arab Emirates (eTN) - Experts who attending the Arabian Hotel Investment Conference, held from May 3 to 4 at the Madinat Jumeirah in Dubai, believe the global slowdown won’t last and the synchronized inflation rate around the world will subside, and that India and China will neutralize the effects of the meltdown in the world’s economy. Despite growing concerns over the economic meltdown, inflation and escalating oil prices, markets such as India and China will remain strong. Certainly, they will take the lead, experts advise. Outlook for continued growth of the global economy was laid out by economic guru and chairman of Oxus Investments, Surjit Bhalla. He said there was every indication that despite the housing and financial crises in the United States, there was a reasonable chance of avoiding recession. According to him, this would be due to the impact of high growth rates in India, as well as in China. China and India have dramatically transformed and revolutionized markets in Asia, growing five to ten percent per annum per capita. The rapid non-linear development of the middle class has changed both nations whose 50 to 60 percent population in the ‘80s were absolutely poor, living on $1 per day below subsistence level. Later, daily earnings went up slowly from $2 per day to $4 to $5 in the decade. Today, India’s middle class is in the driver’s seat. “The world has not noticed because the consumption package rate was slow. It was not nothing investors worldwide were concerned about when world rates were $8 per day for non-poor in the western world. Today, India’s large force middle class boasts creating higher level of economy that has escaped poverty. Though it does not impact government policies, it demands working in a level playing field which certainly makes government react with middle class demands,” said Bhalla. India and China’s middle class today is the non-absolute poor in the developed world, out of an absolute poverty line of PPP $1.08 (1993) compared to the absolute poor, developed economies’ PPP $7.77. The middle class line was approximately PPP $3700 per capita per year in 2007 price levels. Purely out of self-interest, this economic strata believes in market virtues as the only way to prosper. “The middle class believes in property rights, free trade, rules of the game and anti-corruption,” added Bhalla. This 2008, some 14.2 percent of the 400 million Indian population is middle class. Investment to GDP ratio grew incredibly high by 2000 percent, showing that transformation within the last five years grew investments by 9.5 percent, savings rate up by 12 percent and growth rates up 27 percent, Bhalla said Today’s middle class is the major demand-generator of infrastructure with high demand for power, roads, airport, clean water, sanitation, as well as social infrastructure, education and health. Infrastructure in India and China has grown tremendously, however, China has not caught up with infrastructure capacity such has India. Before the 1950s, India and China’s world output collapsed to 8 percent. In the 80s, over 50 years later, India and China were making 80 percent of world output in infrastructure, with India being more advanced than China. It also surpassed China infrastructure growth in the last years with the recent three to five years build up of industries. 
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