The Indian economy is one of the fast growing economies in the world and is spearheading to become an economic power from the developing countries bloc. With a Gross Domestic Product (GDP) growth rate of 6%-8% recorded successively, India is able to attract huge investments from across the world. As a potential market for investment, India has multiple advantages like untapped markets, enormous natural resources, skilled workforce, conducive legal framework, strong government support for Foreign Direct Investments (FDI), etc., that make it a safe destination for investments. At the same time, its financial system is well supported by strong, at times conservative policies of the Reserve Bank of India, which have insulated the Indian economy from frequent economic shocks affecting the economies across the world.
One of the key requirements for FDI inflows is the sound infrastructural setup that exists in a country. The Indian government, after independence, has taken the responsibility of investing in the social and physical infrastructure so as to dispense the benefits to one and all. Public utilities like railways, roadways, airways, ports and shipping, telegraph, telephone etc. were all developed and run by the public sector. All these are capital-intensive industries and private sector in India at that time had limited financial resources. The infrastructure sector was started by the government on service lines, worked on a nonprofit basis and was aimed at achieving social benefit.
However, by the end of the 20th century, most of these industries went into losses and became counterproductive for the nation and its development. The obvious choice available was to consider private participation into these sectors. The government, on its side, was also facing numerous political and economic challenges during the same time. India had a tough time handling the depleting foreign exchange, dwindling economic outlook and uncertain political conditions in the country. Public confidence in the financial system was also at its lowest ebb as the country by then had seen multiple scams and scandals, adversely affecting the investor confidence.
Taking cue from the World Bank in 1991, the Indian Government initiated the Liberalization, Privatization and Globalization (LPG) program. The aim of LPG was to slowly relax the statutory norms, liberalize the legal framework and relax the tax norms so as to make the Indian markets attractive for private investments. The New Industrial Policy, 1991 made the government take a ‘U’ turn in its approach regarding the private sector participation towards nation building. Sectors that were hitherto reserved for public sector were opened up for private investment. Liberalized norms in approvals, relaxed procedures and simplified tax mechanism were the highlights of the New Industrial Policy, 1991 which attracted private investments in India. At the same time, attracting FDIs into the infrastructure sector was also imperative for the growth of the nation. The government, sensing this obligation, has relaxed the norms in a phased manner, making India a favorable destination for FDIs in the infrastructure sector. The availability of adequate and strong infrastructure facilities makes the manufacturing and other sectors more productive. Multi-National Corporations (MNCs) look for infrastructure facilities available in a country before investing.
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