Report

I MPACT OF SAFTA ON INWARD AND OUTWARD FOREIGN DIRECT INVESTMENTS 65
more eager to invest in Bangladesh than before. TATA’s
US$ 2 billion investment proposal is such an example.
State-controlled Bangladesh Power Development Board
will implement the project and the ADB has said it will
provide a $110 million loan for the project. The
government also formed an expert committee to explore
the possibility of a power purchase.
Within the total investment coming from the South
Asia region to Bangladesh, Pakistan was the single
largest source (79%) in 2005 (US$ 25.5 million), while
Indian investment of US$ 1 million was the single largest
source (47%) in 2006 (Table 8.4).
Sri Lanka
Examining the bilateral trend in FDI between the
SAFTA member countries we find that India is an
important source of FDI to Sri Lanka and ranks
amongst the top five investors with 164 projects valued
at Rs 32 billion as of 2006 according to the Board of
Investment (BOI). Most of the FDI (over 60%) from
India has been in the services sector. Comparatively
small investments have been made by Bangladesh in
the services sector.
In fact, Sri Lanka has long been a priority destination
for direct investment by Indian businesses within
the SAARC region. Over 50% of Indian joint ventures
and wholly owned subsidiaries in the region are located
in Sri Lanka. Of the total equity invested by Indian
companies in regional joint ventures, 54% are located
in Sri Lanka. The number of approved projects which
stood at 23 in 1991 with an estimated investment of
SLRs 740 million was mainly confined to small and
medium steel rolling mills, chemicals, rubber products
and service sector projects. By the end of June 2000,
however, the number of projects had leaped to 120 with
an estimated investment of SLRs 12.5 billion.
The principal sectors which have attracted Indian
investment are steel, cement, rubber products, tourism,
computer software, IT-training and other professional
services. During the past three years, leading Indian
companies such as Gujarat Ambuja, Asian Paints and
Larsen and Toubro have committed substantial investments,
while existing companies – CEAT and Taj
Hotels, for example – have expanded their operations.
Sri Lanka’s Board of Investment has given approval
for India’s largest publicly-listed telecom firm, Bharti
Airtel, to be the island’s fifth mobile phone operator
with an investment of 150 million dollars in May 2007.
Some illustrations have been given in Table 8.3. Even
Sri Lankan firms are interested in investment in India.
Brandix Lanka (Sri Lanka’s largest exporter with shipments
exceeding US$ 320 million), and MAS Holdings
(which together with its joint venture partners has a turnover
of around US$ 700 million) are setting up textile
and apparel industrial parks offering a one-stop-shop
to potential investors. These parks will enjoy all the benefits
of operating in one of India’s SEZs, which operate
as duty-free enclaves treated as a foreign territory. Brandix
foresees Sri Lanka as the hub for all front-end and product
development activities, while exploiting the scale
advantages offered by India.
India
India is one of the SAARC countries where overseas
investment policy has been substantially liberalised in
recent years. Indian companies can invest up to US$
100 million (US$ 150 million SAARC countries, excluding
Pakistan and Myanmar and up to Rs 7000 million
by way of rupee investments in Nepal and Bhutan) in a
year without approval of RBI or GoI provided the overseas
investment is not real estate-oriented. Funding of
such investments can be out of balances held in
Exchange Earners Foreign Currency Account (EEFC)
of the Indian Company or 100% of ADR/GDR proceeds
or withdrawal of foreign exchange from an authorised
dealers in India up to 200% of the not worth of
the Indian company
India’s investment in South Asian countries was US$
164.53 million during the period 1996–2002, being
no more than a little over 2% of its overseas world
investment. Nepal was the most important destination
of Indian investment followed by Sri Lanka. Since 2002
however Sri Lanka has overtaken Nepal as India’s
largest investment destination in South Asia (Raihan
2006).
By virtue of its proximity and the Trade Treaty with
India, close economic linkages between India and Nepal
have manifested themselves, inter-alia, through Indian
investment and joint ventures in Nepal. Government
of India has established a special ‘Nepal Window’ to
facilitate approvals for Indian investment in Nepal and
the limit for ‘fast track’ approval by Reserve Bank of
India for investments in Nepal has been raised in July
2000 to Rs 350 crore (Indian currency). In 2000 there
were over 265 approved Indian joint ventures in Nepal
of which over 100 are operational, with a cumulative
total Indian investment amounting between 36 and
40% of the total FDI in Nepal. In 2004 there were 114
operational Indian joint ventures in Nepal with
authorised capital of NR 14.33 billion. Of these, 22