Foreign Direct Investment Policy in South Asia

Abstract

In Chap. 2 we analysed the economic performance of the five South Asian countries during the last three decades. Results indicate that South Asian countries have improved their macroeconomic performance during their reform period except Pakistan. In this chapter, we present FDI policies of South Asian countries which are important for understanding FDI inflows to the region. The chapter highlights the fact that though the South Asian countries had a fairly restrictive regime in the early years of their independence, they have liberalised their FDI environment considerably in the recent years with emphasis on single window clearance, speedy clearances, encouraging private sector participation through PPPs, and several incentives to foreign investors including tax sops, setting up of SEZ, investment promotion zones, and BOIs to keep up the pace of FDI inflows to the region. Overall, there has been a complete turnaround in the FDI policy, from closed to an open-door policy with most of the sectors being open to foreign investment with little variation across countries. All the five South Asian countries have been very proactive in improving their FDI policy efficiency to attract more FDI into their respective countries. However, some strategic sectors like defence, railways, and arms and ammunitions have been barred from foreign investment. Given the immense potential of the region to attract FDI flows, the chapter has also identified and detailed the country-wise measures required in future to keep up the pace of FDI inflows and the pending reforms that need to be implemented to help South Asia sustain its growth and FDI momentum.