Foreign Direct Investment in India: Prospects for Pakistan

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Foreign Direct Investment in India: Prospects for Pakistan

Partner: ICRIER

Duration: October 2012 to June 2013

Locale: Karachi, Lahore, Sialkot, Islamabad

Team Members: Dr Vaqar Ahmed, Muhammad Adnan

Introduction:

The study focuses on Pakistan's potential for Foreign Direct Investment (FDI) in India. The latter has allowed FDI from Pakistan via government route i.e. after seeking due approval from FIPB. No proposal from Pakistan till now has been able to get clearance from FIPB. The investment regime in India still remains restrictive for Pakistan.

The analysis of the study has been supplemented with interviews of leading business persons who may have the economies of scale to understand investments and compete in the Indian market. A perception-based value of potential investment that can actually go from Pakistan to India (If both government and automatic route are allowed) stands at $1.6 billion annually. Textile, cement, hotel services and auto parts sectors top the list. Despite the executive approval, cross-border investments have not materialized in either of the countries

Objectives: The main objective of the study was to answer the following questions

What are the key sectors available to Pakistani investors in India?
How many Pakistani businessmen are willing to invest in India?
How well the key sectors offered by India compare with potential of Pakistani investors?
What are the general barriers regarding investment in India?
What extent of investment-specific dispute resolution mechanism is needed?
What is the level of cooperation between government investment bodies in India and Pakistan towards investment cooperation?
How will the liberalized trade between India and Pakistan help improve FDI prospects?

Recommendations:

Investment diplomacy is required whereby Pakistan should be allowed to invest in India through the automatic route (besides the currently allowed government route).
In case of other investor countries, the business community seeks a privileged visa facility so that access to their investments in foreign lands is made certain
Both India and Pakistan have experience in arbitration of investment-related disputes at the international level, however the potential investors from Pakistan felt that investment-specific dispute resolution between the two countries needs to be relatively more transparent and detailed.
Even if in short-term, both the countries do not embark upon a bilateral investment treaty, a legal cover for foreign investors’ fixed assets and intellectual property is required.

Activities:

27 Key Informant Interviews.
Conduction of consultative meetings in Lahore and Karachi.
Desk Review
Publication of op-ed.
Final Report

Findings

Total annual potential of Pakistan investment in India at US$1.6 billion
Textile sector heads the list with potential annual direct investment of US$760 million