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Red tape holds back yen inflow

New Delhi, April 22: Just when India is preparing to relax the foreign direct investment (FDI) ceilings, the bad news is that Japanese investors are still apprehensive about doing business with the country.

“Over a decade into liberalisation, Japanese investors still fear that far from making profits in Indian operations, they may lose money and face too many cumbersome procedures,” says a survey recently conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci).

At present, Japan ranks fourth in terms of FDI flows into the country behind the United States, Mauritius and the United Kingdom. While the cumulative approval of Japanese FDI in India is pegged at around $ 3.1 billion, the actual inflow of Japanese investment from 1991 to August 2002 was around $ 1,251.3 million.

The sectors attracting Japanese investment are transportation (28 per cent), telecommunications (18 per cent), fuel (13.5 per cent), chemicals (12.17 per cent) and trading 6.9 per cent.

The investors face various impediments while investing in India. “Procedural issues and bureaucratic delays are the two main problems besides lack of infrastructure,” says the study.

“The respondents feel that in a market in which business exit policies are inflexible, it is difficult to attract more investments,” says the survey.

Under the existing labour laws, any company employing more than 100 employees cannot restructure through layoffs, retrenchment or closures before obtaining prior permission from the state government.

In addition, Japanese investors in India often complain about the ‘unreasonable collection of fees and various domestic taxes’ as other obstructions to investments.

The respondents feel that “though opening of India’s trade regime has reduced tariff levels, it has not eased some of the most burdensome aspect of customs procedures.”

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