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HomeBusiness$100 billion FDI linked to 9.5% nominal GDP growth

$100 billion FDI linked to 9.5% nominal GDP growth

It was only in November-end that Swiss officials came up with a proposal to “balance” India’s

tariff cuts

with a commitment to investment promotion. With zero industrial tariffs in Switzerland, Indian negotiators kept asking “what is in it for us” when it came to counting the gains.
Almost a month later, a plan for $40 billion FDI was put on the table. It took two months of intense negotiations, and exchange of spreadsheets over video calls for it to be scaled up to $100 billion and create one million direct jobs, although the employment target was lower than what India had sought. Commerce and industry minister Piyush Goyal and his Norwegian counterpart Jan Christian Vestre said this is the first time that such an approach was being used in a trade deal.
Is investment guaranteed?
No. Since the funds have to come from the private sector, govts of EFTA nations – Switzerland, Norway, Iceland and Liechtenstein – will act as facilitators to promote investment and will also open an office in India.

What are the milestones to meet the goal?
The starting point is $10.7 billion, the investment level in 2022. There are no annual milestones as investments are unlikely to be linear and are expected to lag trade growth. After 10 years of the agreement, the countries are looking at $50 billion investment in India and $100 billion in 15 years. There are assumptions such as India’s annual

GDP growth

being 9.5% in nominal terms (including inflation) and other facilitation aspects.

Business 5

Does the plan cover all investments?
The focus is on FDI from companies in the four EFTA member nations with investment by Norwegian funds, for instance, outside the ambit. Investment routed by companies via Mauritius or Singapore will be included in the calculations and so will be reinvested earnings by companies such as Swiss FMCG giant Nestle or Liechtenstein engineering major Hilti into their Indian arms.
What if the investment goal is not met?
There are force majeure provisions such as pandemics, conflicts or an economic crisis, which allow for exceptions. The first review will happen after 15 years and a full assessment will follow after 20 years. A three-tier review mechanism comprising experts, officials and ministers is likely, which will go into the reasons for a shortfall. A three-year correction period will be provided to “meet the deficit”, failing which India can reverse some of the tariff cuts under the trade pact in a “proportionate and targeted” manner. But that will happen only after 20 years, by which time the tariff reductions would have taken place.
Are there focus sectors?
It is not defined in the agreement, but pharma, medical devices, services, engineering and machinery are potential areas for investment.
Is a bilateral investment protection agreement part of the deal?
It is not, although there are concerns over the model treaty that the Indian govt had put in place a few years ago. Negotiations for a new agreement are expected in the coming few months.