Exploring Investment Opportunities in Pakistan
India adopted an open and liberal economic policy around two and half decades ago. Subsequently, many new policies were brought into force. Many existing policies were also abolished. The new policy regime offered various avenues to invest in India. The country which was following a stringent regime regarding Foreign Direct Investment (FDI) opened its doors for FDI. Subsequently, almost all the sectors of the economy were opened to foreign investment. In India, investors were also allowed to invest anywhere in the world. Since then, many of Indian firms have expanded their business in various parts of the world including some of the most developed countries like the USA, UK, and Germany etc. A fairly large volume of investment has also been made in the neighbouring South Asian countries. Indian companies have invested outside to the tune of $5 billion during 2017.
However, India took more than 20 years to allow investment from either side with Pakistan. In August 2012, taking an historical decision towards better economic relations investment was permitted to and from Pakistan. A lot of initiatives have been undertaken to promote economic relations between the two states. Various trade delegations from both sides have visited each other to assess trade and investment potentials. Many of the firms from both countries have expressed their interest in investing in each other’s markets. But, to date there exists no direct investment in Pakistan from India and vice versa. In spite of having a huge potential, cultural and ethnic similarities no Indian firm has yet made any direct investments in Pakistan. However, many Indian firms have invested in Pakistan through their foreign subsidiaries. Tata Motors, Tata Global Beverages, Titan Watches and Dabur India are some of the examples. But, similar examples in the case of Pakistani firms are absent. There is a long list of Indian companies who have expressed their desire to invest in the Pakistani market.
Given the current economic scenario and the factors which are responsible for attracting foreign investment there exist a huge potential for Indian firms to invest in Pakistan. As an emerging economy with a substantial market size Pakistan has a lot to offer to foreign investors. Pakistan follows the most liberal FDI policy in the South Asian region. Pakistan allows 100% foreign ownership of capital, there is no minimum capital requirement for investment, foreign investors are allowed to operate without listing in the local stock exchanges, and investors are allowed to remit the entire profits and dividends abroad. Pakistan also allows disinvestment of the originally invested capital at any time. Apart from these general advantages many more sector specific incentives are also provided to the foreign investor.
With a population of 176 million and with GDP per capita (PPP) of $5235.4, Pakistan in 2016 is a significant consumer based market. Growth of urban centres and the increasing trend of people to shift to urban and semi urban localities provides an additional incentive to potential investors. Pakistan is a country which is rich in minerals and produces many of the precious natural minerals like gypsum, limestone, chromite, iron ore, rock salt, silver, precious stones and many more. These minerals are used as raw materials in many industries. For these industries, Pakistan becomes an obvious choice for investment.
Ethnic similarity plays a very vital role in attracting foreign investment and this is an added advantage for the potential Indian investor. India and Pakistan share a common ethnic and cultural background. People speak a common language, largely share common food, and celebrate common festivals. All these factors provide an added advantage to the potential Indian investor and brings Pakistan closer to India psychologically as well.
Production Motor vehicles (both four and two wheelers) have a great opportunity for investment. The Pakistani market offers a huge scope of growth for motor vehicles production. Many foreign players are already present there. Following Tata Motors, other Indian companies producing motor car and motor cycles can capitalize on the opportunity. Apart from traditional motor cars, electric car and motor cycles are still an underexplored area in Pakistan.
The performance of the Indian pharmaceutical sector is well established in the world. Many of Indian companies have advanced technical knowhow. Patents can help provide necessary support and assistance to Pakistan to expand this industry. The scope for establishing firms for producing medical instruments is also very large. Indian companies can also form joint ventures or enter into technical agreements with Pakistani companies for providing laboratory services. India is well known for its medical tourism with tourists visiting India for world class medical services at affordable prices. Indian hospitals have been treating Pakistani patients for a long time. Benefits of establishing Indian hospitals in Pakistan does not need any in-depth analysis.
Power generation is another sector where Indian can contribute in Pakistan. There exists a huge mismatch between supply and demand in this sector. Indian companies can help to bridge the gap. It is also among the sectors where significant volume of foreign investment has grown in Pakistan in the last few years. Even though an advance level of dialogue between the Pakistani Government and an Indian power generation company run by Adani group to export power to Pakistan failed a few months back, it is not the end of an opportunity. Along with thermal power generation, climatic conditions in many parts of Pakistan provides great scope for wind power generation. Being one the biggest wind power generators in the world India can definitely contribute to this sector. Generation of solar power in another promising area which can be explored.
E-commerce is a sector emerging globally. Pakistan is not an exception. However, Indian firms operating in this sector are more established, technically advanced and diversely experienced compared to their Pakistani counterparts. However, rapid Pakistni urbanisation, a growing population of technically literate youth, the high penetration of internet services and mobile subscribers makes the sector highly attractive. Indian companies who have performed well in the domestic market for the last few years could become global. Pakistan could be a destination for them to diversify their market. All these opportunities come with challenges. Among all the challenges, the political relationship between this two neighbours is the biggest one. Many of the efforts made earlier, could not produce any fruitful results. However, a lot of efforts are still underway to make the overall situation normal and conducive to trade and investment. Time has come to forget the bitter past and move forward positively. It should be noted that relations between these nations are different and hence should also be handled differently. A better relation and closer ties between this two neighbours will benefit the entire South Asian region.
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