Investment in Small Scale Forestry Enterprises: Opportunities and Constraints for India

Abstract

Many timber enterprises in India walk a narrow path between profitability and bankruptcy. Such cases are several. This paper examines the reasons for poor investments in forests in India, and draws policy implications on how to overcome these obstacles. In India, many international funding agencies are supporting several forestry projects; however, the government's enthusiasm for pursuing forestry activities can largely be explained by its concern for attracting greater external funding. The Indian timber import bill increased eight-fold from 1991 to 2006. The domestic and export demand for processed wood products offer scope for value-added exports from India. Traditionally, forests have not been viewed as an industry, and therefore resource mobilisation has always been limited, perhaps because of inappropriate prioritisation. One of the largest and least-addressed obstacles constraining the expansion of the sustainable forestry sector in India is the industry's lack of integration into the capital markets, and consequently its poor access to the mainstream private capital. In order to achieve the target of raising forest cover from 21% now to 33% by 2012, the government of India is promoting public-private partnerships in forestry. The challenge for policymakers in India is to find the best mix of policies and incentives to attract private investment that can partner with the communities.