One of the key features of the economic reforms program, initiated by the government way back in 1991,was opening up of the domestic economy to foreign direct investment flows. It is important to note that prior to 1991, the Indian economy was largely closed and a good amount of protection was offered to domestic industry by way of high import tariffs and restrictions on foreign direct investment flows. However, the year 1991 changed all that.

As the winds of globalization gathered pace and it became evidently clear that Indian economy and industry will have to face up to foreign competition to raise their own competitiveness level, the government decided to take a slew of measures including liberalization of the foreign direct investment policy framework.

The steps taken by the government in this direction over time included bringing more sectors into the permissible list of sectors open to foreign direct investment, raising the foreign direct investment limits / caps across sectors, putting more and more sectors on the automatic route where no permission was required from any government agency before making investment and granting more powers to concerned administrative ministries to take decisions on foreign direct investment projects.

The result of all these steps is that we moved from a position where we had only a small ‘positive list’ of sectors that were open to foreign direct investment in 1991 to a small ‘negative list’ comprising sectors that are close to foreign direct investment today. In other words, today, nearly the entire economy is open for companies to come in and invest.

I am also happy to note that this carefully structured liberalization program of foreign direct investment policy continues till date. Just last year, the Ministry for Commerce and Industry introduced a consolidated foreign direct investment policy document that brought together all notifications and rules on foreign direct investment issued by various arms of the government and Reserve Bank of India. We, therefore, now have a single reference document on rules governing foreign direct investment in India.

Consultations are also underway to open up remaining sectors such as multi-brand retail which are closed to foreign investments and further relax foreign direct investment limits in sectors such as defence.

Another notable development that highlights the commitment of our government to bring in more foreign investments is the setting up of a dedicated institution called INVEST INDIA. This institution, which is a joint venture between the central government, the state governments and FICCI, is a unique venture and aims to evolve as a first port of call for any foreign investor willing to invest in India. INVEST INDIA will guide foreign investors and help them set up operations in any part of the country.

Given the above developments, the question arises as to why we are scouting hard for foreign investment flows, especially when we have a large and rising stock of domestic savings. The answer is twofold. Firstly, our experience with foreign direct investment flows has been very positive and there are cases where foreign direct investments have altogether changed the nature of industry for good. Secondly, even as our pool of domestic savings is rising, the financial requirements to meet our national development goals are fairly large and so we need to supplement these with savings from abroad. Let me dwell a bit on both these aspects.

As an example of our successful experience with foreign direct investment consider the automobile sector. In the early nineties, the automobile industry in India was made up of just a handful of players. A limited number of automobile models were available and there was a long waiting period before one could get delivery of a car. However, after this sector was opened up, there has been a complete turnaround of sorts.

Today, all the major auto players of the world are present in India. Auto production numbers have increased at a rapid pace with India now occupying the seventh position amongst the top ten auto producing countries in the world. Our share in global auto production has also increased and was 5% in 2010. There is ample choice that is available to consumers with a new model being launched in the market every week. The global auto players have brought in the latest technology and have evolved the Indian market to a level from where they have started exporting cars across the world. One should also note the concomitant growth of the auto ancillary industry that was spawned following the entry of global majors.

Now, consider the telecom sector. The story of the Indian telecom sector is nothing short of a fairytale. Nobody could have imagined even five years back that by 2010 India would emerge as the fastest growing telecom market in the world. But this is a fact. With over 800million subscribers and adding nearly 17 to 18million new subscribers every month, the Indian telecom market is today the most sought after by global players. And they, along with domestic players, share the credit for having expanded the market to such levels.

Coming now to the second reason of meeting the funding requirements, I would like to give example of the infrastructure sector. During the five year period from 2007-12, our investments in the infrastructure sector would be to the tune of USD 500 billion. And 30% of this would come from the private sector including foreign investors. During 2012-17, the projected investments in infrastructure are to the tune of USD 1 trillion. Of this nearly 50% is expected to be met by the private sector including foreign investors. The large financial outlays needed to strengthen our infrastructure base explain why we need to tap all sources of funds including savings from abroad. Likewise, there are many other sectors where we need to supplement domestic resources with foreign funds for meeting the development goals of an economy poised to grow at 9 to 10% in the near future.

Foreign investments have been a clear catalyst in India’s development process. Through these flows, we have managed to gain access to best management practices, frontier technologies and cutting edge R&D output. Germany is a hub for high technology and niche industries. We would like to have many more of your companies to develop a presence in the Indian market. While your companies will bring in quality products and services, we can offer an emerging technology base at costs that only a developing country with a huge demographic dividend can provide. Of course, our large and growing market is an attraction in itself. Add to this the new potential markets we are creating by virtue of regional and country level trade and economic cooperation agreements and you get an irresistible proposition.

I am sure that as you go through the pages of this latest edition of the ‘Business Guide Germany India’, you will get more reasons on why it makes sense to be in one of the fastest growing emerging markets in the world.

As a partner institution in this effort, FICCI expresses its gratitude to the publishers and extends an open invitation to all investors to come and explore India with us.