If small and medium enterprises are enabled, FDI will increase

-Demonetisation, implementation of GST and lockdown led to lock down of many small and medium enterprises.

Due to the weakening of the rupee, the forex reserves of the country have decreased. So we are moving towards FDI, but the question here is what do foreign direct investors really want? Older standards of ease of doing business include parameters such as obtaining a construction permit or ease of doing business, but all these paint a partial picture as they only reflect the views of large companies.Global investors look to smaller and smaller companies to get an idea of ​​how challenging or convenient doing business in India actually is Talk to medium enterprises (SMEs) who provide 40 percent of employment.

These small and medium enterprises operate amidst the truly challenging conditions of the local bureaucratic system. Setting up a business in India still requires various types of permits and licenses which require a lot of struggle. In such a situation, the concept of this enterprise may not be similar to that of large companies. Which has easily accessible capital. A lack of coordination between sanctioning bodies means that SMEs have to rely on local connections and often local mechanisms to resolve these issues.

For these small and medium enterprises, the cost of obtaining multiple permits, from electricity connections, is much higher than for large companies that can easily connect with politicians and officials. It is not surprising that all the unicorns or start-ups with a net worth of more than $1 billion in India belong to the IT sector where the local license permit system is relatively less exploitative.

Ease of Doing Business Standards were amended to include provisions such as expediting 'bankruptcy resolution', which enabled India's ranking to rise with the implementation of the Insolvency and Bankruptcy Code, but it is meaningless in terms of small and medium enterprises to take advantage of this code process. Most of the SMEs shut down thousands of their units due to lack of capacity. They took this step during the years 2016-2017 due to demonetisation, implementation of Goods and Services Tax and lockdown respectively.

If small and medium enterprises in India cannot function easily, large global companies cannot function well either. Recently the government has made a policy provision for foreign investment through the Production Linked Incentive Scheme (PLI) in an attempt to address the gaps in India's business environment in a real way. As the units are relatively new, it is not clear whether they will work but one thing is becoming clear that these incentives are unlikely to be short-lived as India will continue to compete for global investment with rivals like Vietnam and Indonesia. The limitations of the business environment with compensation policies are clearly visible in past experiences of investment incentives. Given the long experience of FDI in South East Asia, it can be said that competing with return policies will create such a situation.