India: Framework for Evaluating Investment Proposals, Cost Cutting, Disadvantages of Relocating Businesses to India: GTRI

New Delhi: With India lagging behind China, Brazil and other countries in terms of foreign direct investment (FDI) inflows, the Global Trade Research Initiative (GTRI) has suggested reducing the cost disadvantages for companies moving to India, improving the ease of doing business across the entire life cycle of a company and establishing a framework for assessing investment proposals to increase investments.

The report found that key issues include the concentration of sources of foreign direct investment (FDI), with Singapore and Mauritius accounting for 49% of cumulative inflows and investment disproportionately geared towards trade, services, shopping malls and real estate development.

“This raises concerns about potential tax treaty abuse, where few companies can leverage India’s Double Tax Avoidance Agreements (DTAA) to reduce tax liability, contributing little to real economic development,” GTRI said in a report released on Thursday.

According to the World Development Report 2023, India attracted $44.4 billion in foreign direct investment (FDI) in fiscal 2024, which is just 1.1% of its GDP and lower than China’s $189.1 billion, Brazil’s $86.1 billion, Australia’s $61.6 billion and Canada’s $52.6 billion.

According to the report, India needs to address four cost components – labour, materials, energy and financial costs.

He noted that in India, raw material costs are higher for custom manufacturing due to import dependence and high tariffs. “China benefits from lower costs due to large-scale local manufacturing and efficient supply chains, while Vietnam offers competitive costs with low or zero tariffs on imports,” said GTRI founder Ajay Srivastava. The suggestion was to invite leading global companies as primary manufacturers. These companies can drive technological innovation and increase productivity across sectors.

Investments involving technology transfer must be assessed for their potential to strengthen local technological capabilities, especially in high-tech areas where India wants to close the gap.

The proposed framework for assessing investment proposals must include rigorous checks to prevent risks to national security, especially in the areas of defence, telecommunications and infrastructure.

“Protecting these sectors is crucial for national security and resilience. It is important to avoid increasing economic dependence on foreign entities as this could undermine India’s strategic autonomy and decision-making in key industries,” Srivastava said.

He said that finance costs in India are the highest with interest rates on loans being around 9-10%, while in China interest rates are lower at 4-5% and in Vietnam they are moderate at 7-8%.