Report of the Joint Study Group on the Feasibility of India-Indonesia ...

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31 Investment III.1. Introduction India and Indonesia are important destinations for foreign direct investment (FDI). Both countries have adopted proactive investment policies and measures to attract FDI inflows. Both countries are also becoming increasingly significant sources <strong>of</strong> outward investment. Although two way investment flows between India and Indonesia have so far been limited, <strong>the</strong> continuous investment flows and increase in bilateral trade in recent years indicate that <strong>the</strong>re is potential for increased investment flows between <strong>the</strong> two countries. Policy on FDI, namely ownership by foreign nationals including incorporated entities, determines sectors and extent to which foreign nationals are permitted in various economic activities. India and Indonesia have progressively liberalised <strong>the</strong>ir industrial sectors to foreign investment. However, restrictions on foreign ownership remain in some sectors/activities which are sensitive. III.2. Investment Opportunities III.2..1 India India <strong>of</strong>fers immense investment opportunities in a variety <strong>of</strong> sectors, including manufacturing, infrastructure and services. Development <strong>of</strong> <strong>the</strong> infrastructure, i.e., power, roads, ports, telecommunication and civil aviation are given priority by <strong>the</strong> Government. India has <strong>the</strong> potential <strong>of</strong> absorbing high levels <strong>of</strong> FDI in <strong>the</strong> infrastructure sector in <strong>the</strong> next few years. The Government is undertaking major programmes in <strong>the</strong> infrastructure sector with private sector participation which can generate more investment opportunities. Indonesia has a good track record in <strong>the</strong> development <strong>of</strong> its infrastructure and Indonesian companies can participate actively in <strong>the</strong>se infrastructure projects. FDI up to 100 per cent is already allowed in <strong>the</strong> development <strong>of</strong> power, roads, ports and airports. Manufacturing particularly skill intensive activities, and knowledge based industries are areas where India has strong competitive advantages. Collaboration between Indian and Indonesian companies can be a mutually beneficial exercise for investors from both countries.
32 India has improved its position by two places in World Economic Forum’s ‘Global Competitiveness Index (GCI) rankings for 2006-2007, coming in 43 rd , well ahead <strong>of</strong> Brazil (65), China (54) and Russia (62). India has retained <strong>the</strong> second place in AT Kearney’ FDI Index (2007), a position it has held since 2005. The report predicts India to be on <strong>the</strong> cusp <strong>of</strong> FDI take <strong>of</strong>f, in view <strong>of</strong> <strong>the</strong> Government maintaining focus on reforms infrastructure, logistics and regulatory barriers. According to a survey conducted by Dun & Bradstreet <strong>the</strong> business optimism index for <strong>the</strong> quarter ending December 2007 recorded an increase <strong>of</strong> 14% to 177.1 from 155.3 in <strong>the</strong> quarter ending September. The quality <strong>of</strong> <strong>the</strong> business environment in India has improved tangibly in recent years. FDI inflows depend on <strong>the</strong> decisions <strong>of</strong> foreign investors which in turn depend on a host <strong>of</strong> factors such as availability <strong>of</strong> natural resource, market size, infrastructure, political and general investment climate as well as macro-economic stability. Government <strong>of</strong> India has put in place a liberal and investor friendly FDI policy. However, FDI inflows into India are far less as compared to china where <strong>the</strong> FDI policy is highly regulatory. Investors have cited infrastructure bottlenecks, rigid labour regulations, high taxation and excessive regulation as major impediments to higher FDI inflows. India has also not been able to attract FDI in exports, as has been <strong>the</strong> case in China. III.2.2. Indonesia The Indonesian government has ranked investment, including foreign direct investment (FDI), as a key component <strong>of</strong> its five-year development plan. For its five-year development (2004-2009), <strong>the</strong> Indonesian government estimated that it required US$ 426 billion, including US$ 150 billion for infrastructure development. Indonesia <strong>of</strong>fers several attractions to foreign investors, including: - A large and rapidly growing domestic market <strong>of</strong> more than 220 million people and an industrious labour force; - Abundant and diversified natural resources (estate agriculture, fisheries, forestry, and mining); - Sound macroeconomic policies and an open capital account;
Page 1 and 2: 0 Report o
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Page 21 and 22: 20 II.7.1. Rules of</strong
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Page 41 and 42: 40 Table 11 Portfolio investment fl
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Page 47 and 48: 46 From August 1991 to December 200
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Page 51 and 52: 50 III.4.2. Indonesia Indonesia ran
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82 V. 5.3. Forestry Indonesia has a
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84 V.6. Cooperation in Transportati
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86 countries/ agencies, after signi
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88 For enhancing training and educa
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90 In a partial-equilibrium framewo
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92 VI.4 Trade in Services In respec
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1 Terms of Referen
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3 Table A.I.1 Composition o
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5 Table A.I.2 Composition o
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7 Annexure 2 Table A.II.I Sectors w
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9 Table A.II.I Sectors with Dynamic
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11 Table A.II.2 Sectors with Dynami
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13 Annexure 3 Table A.III.1 Indones
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15 Table A.III.2 Indonesia as an Im
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17 Annexure 4 Table A.IV.1 Potentia
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19 Table A.IV.1 Potential for India
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45 Table A.IV.3 Potential for <stro
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59 Table A.V.1 Items Amenable for I
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75 Annexure 6 HS 6-digit Code Table
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77 HS 6-digit Code Table A.VI.1 Ind
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85 Annexure 7 Table: Macro Economic
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87 Forecasting India’s exports to
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89 POLICY ON FOREIGN DIRECT INVESTM
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91 (iii) Other ser
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93 vii) viii) ix) x) xi) xii) xiii)
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95 30. Satellites - Establishment a
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97 Investment Incentives Annexure C
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99 India's share in Asia**) 2.46 4.
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101 Fig 6: Comparative Trend in RCA
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Report of the Joint Study Group on the Feasibility of India-Indonesia ...

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