Treat investors as stakeholders in India's growth: Deloitte

Written by PTI | New Delhi | Updated: May 13 2014, 22:18pm hrs
DeloitteIt noted that economic upswing in US will bring in fresh opportunities for India and positively impact economic resurgence in country. Reuters
India should continue to treat investors, including those from the US, as stakeholders in its growth story and engage with businesses while formulating economic policies, said a Deloitte study.

"The Indian government should continue to recognise industry (including US investors) as stakeholders in the Indian growth story. Businesses must therefore be actively engaged in the consultative process while the government formulates economic policies," it said.

The Deloitte study, conducted in partnership with American Chamber of Commerce in India, said the approach will take the defining partnership between India and the US to the next level of growth and development.

It noted that the economic upswing in the US will bring in fresh opportunities for India and positively impact economic resurgence in the country.

The study, which focuses on seven sectors including defence, retail, healthcare and banking & financial services, said: "India has potential for a sustained high growth for the next couple of years; and the US companies must explore the opportunities to enter the rising Indian market."

However, it said that there are challenges in regulation, governance and policy, such as inadequate supply of infrastructure, an "inefficient government bureaucracy", multiplicity of authorities and complex policies.

"To enhance this fruitful relationship further; the Indian government needs to overcome a few roadblocks such as complex nature of the taxation system, number of procedures in the regulatory processes, time consuming processes for approvals, multiplicity of authorities," it added.

On banking and financial services, the study said that in the current scenario, foreign banks face challenges to operate in India without subscribing to the requirement of local incorporation.

"Government can consider issuing differential licences to the players depending on their business models with particular player focusing on specific product, geography or market segment," it said.

It added that further opening up of FDI in insurance will go a long way in restoring India as one of the key markets for attracting foreign capital.

In retail sector, it suggested that government should have universal policies applicable over all states in India with regards to FDI.

"In case of FDI, the government needs to simplify the procurement guidelines. Changing the 'mandatory' rule of 30 per cent outsourcing raw material to 'preferred', would encourage more foreign retailers to enter the Indian retail sector," they study said.

It added that the tax system needs to be streamlined as existing tax policies have a significant impact on supply chain and operation designs of the retailer.

On manufacturing, the study has suggested that there is a need to reform the labour laws which include a liberal hire and fire policy for the sector.

"Weekly, daily and quarterly working-hour restrictions could be aligned with international best practices such as 10 to 12 hours, subject to overall existing weekly caps," it said, adding there is also a need to take steps to ensure that the trade union movement achieves its objectives of collective bargaining, while not harming the manufacturing sector.

Further it said that FDI in defence sector, capped at 26 per cent with case by case approval beyond that for state-of- the-art technology, has limited investments.

"This has limited investments of the defence sector not only restricts valuable Foreign Exchange flow into India for an attractive sector but also deprives India of potential exports," it said, adding that "there is not much logic to this cap except this principally driven by Defence PSUs to keep their interest going".

Amidst growing trade relationship, it said the US firms face critical issues such as unfeasible delays and extension on letters of offer and acceptance, delays in approvals for subsequent acquisitions such as for the follow-on order of additional C-130Js from Lockheed Martin.

The study said: "As per existing policies, previously agreed upon terms and conditions are being questioned by the Ministry of Defence, thus delaying commercial contracts from being signed."

In healthcare sector, the study said, US companies face regulatory hurdles

in India and the Indian government does not allow FDI in the retail pharmacy segment.

"The issuance of unwarranted compulsory licences, unfair revocation of valid patents, and denial of patentability of inventions in India remain critical areas of concern for the pharmaceutical industry," it said.

It also said the present IPR regime leads to disrupting the drug discovery and development cycle.

"The indirect and lengthy legal route that multinational companies are required to take to address their patent challenges is unacceptable. Business opportunities are lost when disputes take a lot of time to be processed," it added.

The Obama administration had been strongly criticising India's investment climate and IPR laws, especially in the pharmaceutical and solar sectors.