The country’s strong economic growth, its democratic institutions and youthful population are attractive but its high import tariffs and other protectionist measures make foreign investment difficult. Vodaphone and Carrefour know all about it.

Mumbai (AsiaNews) – India is an attractive market for foreign investors. The country needs foreign capital but instead of laying out the welcoming mat it raises hurdles of different kind.

The Indian market is attractive because of its rapid economic growth—8 per cent annual rate in the past three years, especially in services and manufacturing (about 10 per cent annually over the same period). But various studies agree that sustained growth needs investments in infrastructure.

India’s federal budget this year allocated INR 1,340 billion (US$ 30 billion), especially for roads and power plants. For many experts that is too low. According to Nasser Munjee, chairman of the Development Credit Bank, the country needs at least US$ 150 billion per year to meet its needs, and to do so it must attract foreign investments.

As much as the market is attractive and growing (experiencing however high inflation, 6.7 per cent in February), foreign investors trying to get in face snags and hurdles like tariffs to import duties. One example, for instance, is the recent decision by the government to raise tariffs on cement and telecommunication imports.

The BBC took a fresh look at the difficulties foreigners face when they try to find their way in India’s economic world.

British telecom giant Vodafone got the green light from India's foreign investment officials last week, after first announcing it had bought a stake in Hutchison Essar, India's fourth-largest mobile phone firm, back in February. Vodafone is keen to ensure that its experience in India should not be perceived negatively.

“It is the largest ever foreign investment in India—US$ 11 billion—so we certainly expected the Indian government to look at it closely," Ben Padovan, the group's public relations head, told the BBC.

One reason for restrictions on foreign investors lies in how India’s retail trade sector is structured, one that is largely made up of small operators who want protection.

“What will happen when a big supermarket with foreign goods opens on this street?” asked a small shopkeeper in Mumbai.

In response, the Indian government ordered a study on the impact of organised retailers on the sector. Small shopkeepers make up the bulk of the country’s US$ 300 billion retail market.

European retail giant Carrefour has reportedly decided to wait until the study is out later this year before it enters the Indian market.

High import tariffs may have effectively kept investors out. But India does have some advantages for foreign investors, especially when compared with China. For starters, India is a democracy which should give confidence to foreign investors. And it has a youthful, outward-looking population with a newly-acquired buying power.

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• vodaphone
• carrefour