Investment in Small-Scale Forestry Enterprises: A Strategic Perspective for India

Abstract

Small and medium enterprises are a key driver of current double-digit industrial growth of India; however, the shrinking domestic log supply has created a unique market opportunity for global forest-based industries. This paper examines the major obstacles to investment in forests at the national and individual firm level and also the policy steps needed to overcome these obstacles. Forest-based small-scale enterprises cite finance as their principal constraint in maintaining their competitive position and developing their activities, with shortages of raw material often taking second place. India has extensive tracts of land suitable and available for forestry; afforestation, although economically viable, requires massive initial investment by both the government and private sectors. India is promoting public–private partnerships in order to increase forest cover to ensure entitlement for the investor over forest produce, along with necessary safeguards for protection of and compensation for the rights of village dwellers and communities, besides providing them additional benefits and livelihood. Governments need to tackle corruption and other forms of rent-seeking, in order to build credibility with firms, foster public trust and legitimacy and ensure their policy interventions are crafted to fit local conditions. Competition requires the Indian forest products industry to accomplish a strong improvement in its economic and technological capabilities. The challenge for forest policy-makers in India is to find the right mix of policies and incentives to attract private investment.