114 l REGIONAL INVESTMENT PIONEERS IN SOUTH ASIA
The currency specification has a mixed effect. On the one hand, it may direct investment to Nepal and Bhutan when faced with foreign exchange shortages in India instead of other countries that require convertible foreign currency. On the other hand, it deprives Nepal and Bhutan of convertible foreign currency.12 Initially, India’s OFDI laws reflected positive preferences for South Asia. In legislation that came into effect in 1995, the limit on the value of automatic-route OFDI was $37 million (denominated and transacted in Indian rupees) for Bhutan and Nepal and $30 million for other South Asian Association for Regional Cooperation (SAARC) countries and Myanmar; it was lower, $15 million, for the rest of the world. In 2003, again, higher than global limits were set for OFDI to Bhutan and Nepal (albeit denominated and transacted only in Indian rupees), Myanmar, and SAARC countries; but this time Pakistan was excluded. Specific Regional Aspects of IFDI Laws India liberalized inward investment from Sri Lanka in 2004, from Bangladesh in 2007, and from Pakistan in 2012.13 In May 2000, a notification under the new Foreign Exchange Management Act 1999 allowed foreigners—except for citizens of Bangladesh, Pakistan, and Sri Lanka, and entities from Bangladesh and Pakistan—to buy shares in Indian firms.14 Two other FDI-related notifications (on the acquisition of immovable property and the opening of branch offices) also required prior Reserve Bank of India approval for these three countries. The provisions applied to additional countries—Afghanistan, Bhutan, China, the Islamic Republic of Iran, and Nepal—for acquisition of immovable property, and Afghanistan, China, and the Islamic Republic of Iran for the opening of branch offices.15 Currently, all investments in India from a country that shares a land border with India, or where the owner of an investment into India is situated in or is a citizen of such a country, need to go the government route. In addition, a citizen of Pakistan or a company incorporated in Pakistan also needs to go the government route. Nepali and Bhutanese citizens, however, can invest in Indian companies if the payment is made in free foreign exchange through banking channels. For start-up companies, people resident outside India (other than those who are citizens of Bangladesh and Pakistan, or entities that are registered in Bangladesh or Pakistan) can invest in convertible notes.16 Many of these exceptions are reiterated in the Consolidated FDI Policy 2020.
Scope of and Strategies for OFDI: Evidence from Firm Surveys and Case Studies Just as with international trade, firm-level analysis is required to gain a clear understanding of cross-border investment flows. Concerns about the available aggregate bilateral data related to the complications posed by investment hubs for South Asia, and the lack of data for small and fragile economies, were key reasons for embarking on data collection for this study. Only India has adopted the practice of allowing public
