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India cuts red tape

September 25, 2014

India, long synonymous with red tape and a harsh tax regime, is trying to become a global manufacturing hub. The country is pushing for more investment, promising to remove hurdles and liberalize the flagging economy.

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Indiens Premierminister Modi Feier des Unabhängigkeitstags CLOSE 15.08.2014
Image: Prakash Singh/AFP/Getty Images

India is cutting red tape, streamlining bureaucracy and relaxing rules for foreign investors to attract global business to manufacture in the world's largest democracy.

On Thursday, the country's business-friendly prime minister, Narendra Modi, spearheaded a new initiative called "Make in India," promising to make it easier for companies to produce their goods in India.

With the knowledge that manufacturing in India accounts for only 15 percent of gross domestic product - a figure that pales to many other Asian nations - Modi is looking to kickstart a slowing economy.

"We don't need to invite the world to India," he told a gathering of business leaders, including India's richest man, Mukesh Ambani. "They are ready to come. We just need to give them the address."

Millions of people enter the job market each year, but many of businesses lament a harsh tax regime and unwieldy bureaucratic hurdles that are unfavorable to doing business there.

Some of the measures introduced included the amendment of labor laws in some states, raising caps on foreign direct investment in various sectors and clearing a number of road, rail and power projects.

Strong competition

China's massive manufacturing sector has long overshadowed India's, a fact that was underscored in a recent World Bank ranking that placed India 134th of 189 economies in its conduciveness to business while China scored 96th.

"I asked my staff, 'why are government forms so lengthy?' And there was no reason," Modi said.

The prime minister's timing may be spot on, as many global companies are seeking an alternative to China as operating costs and risks there increase. But companies have also turned their backs on India as convoluted rules and regulations take all incentive out of working there.

"Costs of production in India increase because of various government policies, procedures, regulations and the way some of the laws are implemented," Modi said, adding that it "pained" him to hear about companies leaving India due to too much red tape.

The government in New Delhi has identified 25 sectors that have the potential to attract growth, including the automobile, aviation and construction industries.

Modi is also gearing up for a trip to the United States this week, where he will meet with President Barack Obama nine years after being denied a visa for his role in riots in the western state of Gujarat in which more than 1,000 Muslims were killed.

He will also sit down with the heads of Google and PepsiCo to court the companies into investing more in India.

cjc/hg (Reuters, dpa)