Bold bid for foreign funding

PUBLISHED : Wednesday, 23 March, 1994, 12:00am
UPDATED : Wednesday, 23 March, 1994, 12:00am

INDIA is forecast to surpass China in its foreign investments with the Indian Government's continual effort to liberalise the economy, according to Hari Harilela, honorary consul for Bhutan in Hong Kong and Macau.

Speaking at a seminar on India by the American Chamber of Commerce in Hong Kong, Mr Harilela said: ''Lulled into a socialist slumber of economic indifference for over four decades since Independence, the country is finally coming to life with free-marketpolicies aimed at attracting international investments for rapid economic growth.'' Since mid-1991, the Indian Government has slashed customs duties, reduced income taxes and deregulated all sectors of the economy to encourage foreign businesses to invest in the country.

The removal of several regulations in the Foreign Exchange Regulation Act, a cornerstone of India's inward-looking economy for the past two decades, will help attract foreign investments.

Since reforms began, at least 70 existing foreign investors have raised their stakes in joint ventures above 51 per cent, and nearly 40 multinationals have established wholly owned ventures.

Mr Harilela said the obvious reason for foreigners to establish companies in China rather than India was the favourable investment climate there.

''While China opened its market with little or no regulatory measures in place, India was burdened by one of the highest and most complex taxation systems in the world, a colossal body of regulations, licences and procedural requirements which would scare away the most stout-hearted businessman,'' he said.

However, he predicted that international investment should soon shift its focus to India because China was now introducing regulations and taxation which might discourage foreign investment.

''It would appear to me that as China regulates, investments will slow down. And as India effectively deregulates, investments should pick up.'' India expects US$2.5 billion of direct foreign investment and equity portfolio investment in the next fiscal year.

The recent budget, delivered last month by Finance Minister Manmohan Singh, was in line with the liberal economic reform, which also favoured foreign investment, Mr Harilela said.

Corporate tax, for example, had been cut to 40 per cent from 51.75 per cent. Mr Singh had said that if India's industrial production grew at the targeted rate of six per cent per annum, it would be among the world's top five to six economies by the turn of the century.

India is now the world's 12th largest economy, according to the World Bank.

Ameet Parikh, senior manager for corporate finance at Arthur Andersen in Bombay, said investment in India was safe because the legal and democratic systems would ensure investments were protected.

Also, the country's massive population represented a large market for consumer-oriented products, he said, adding that Indians were buying more expensive and durable consumer goods.