NCCR - India’s Multilayered Regulation of FDI

Chaisse Julien, Chakraborty Debashis and Guha Arup, ‘India’s Multilayered Regulation of Foreign Direct Investment - Between reluctance to multilateral negotiations and unilateral proactivism', in: Julien Chaisse and Philippe Gugler, Expansion of Trade and FDI in Asia: Strategic and Policy challenges, (London: Routledge, Contemporary Asia Series 2009).

The potential inclusion of a multilateral framework for investment at the WTO aims to coordinate the global regulation on trade and investment. In addition to the difficulties arising during these negotiations, one major concern is the fact that certain countries like India do not have an interest to go for a full-scale Capital Account Convertibility. As a part of the G4, India is currently a major player in the trade-related international regulatory framework. It is argued here that the question of a multilateral framework for investment cannot be solved without taking into account the Indian reluctance to a freer investment regime. There is a historical reluctance of developing countries to establish freer investment regimes. The project on a New International Economic Order already put as a preeminent point the sovereignty of States and their necessary control of the private sector notably of foreign capital. But that political approach is reinforced by objective arguments analysed here. First we briefly discuss the debate on having a freer investment framework and foreign investment regime in India. India’s submissions to the WTO on this front are reviewed next. Finally in order to evaluate the legitimacy of India’s concerns, through an empirical model the potential impact of a destabilizing shock on her capital account is analysed. Finally based on the findings, the policy lessons are drawn.