Invest India: Strengthening the Investment Promotion and Facilitation Preparedness of Sub-national IPAs
Invest India: Strengthing the Investment Promotion and Facilitation Preparedness of Sub-national IPAsA description of how the challenge was identified. (How did the IPA learn about the bottlenecks, policy failures or market failures addressed through the reform and what data collection tools were used to this goal (i.e. interviews, surveys, feedback loops);
Since the inception of Invest India (2015 – in the current form), the Agency has strived to attract and retain investments in the country, by offering investors a variety of services. One of the key services provided is helping investors identify suitable location for their projects from the options available across Indian States. This activity is conducted in close coordination with State Government authorities including State investment promotion agencies. During such interactions, it has been observed that States in India differ considerably in their preparedness to deal with investors. Sizable differences were noted in terms of having a dedicated IPA, budget considerations, the skills of experts and support staff, the quality of systems and processes, etc.
Thus, the fact that only a few states have been receiving the lion’s share of the investments was not due to just inherent advantages such as proximity to markets, availability of natural resources or advanced infrastructure, but also due to external factors such as: well-marketed locations, proactive government policies, dedicated teams handholding investors and offering customized support services pro-bono etc.
To address these challenges, Invest India initiated, in 2017, a nation-wide project on strategic assistance and guidance for the development of Indian State Investment Promotion Agencies (State IPAs). The initiative was supported by the Department for Promotion of Industry and Internal Trade, within the Ministry of Commerce and Industry and the World Bank Group.
In Phase I, a framework including a 55-questions survey and corresponding guidance notes was rolled-out to all State IPAs in the country, in which 21 participated. Over the next six months, field visits were undertaken by the project team to each participating state, to validate and calibrate the data. These visits included one-on-one consultation sessions with State Industries Departments and State IPAs on topics such as creating dedicated agencies for handholding investors, their organisational structure, key activities, terms of reference for staff and hiring strategies, and the concept of relationship management. 21 full reports, customized for, and confidential to each participating IPA were delivered, highlighting strengths, weaknesses, and gap areas, and offering recommendations for improvement.
Based on the lessons learned from Phase I, the Phase II of the project (ongoing), focuses on specific areas of improvement. The team prepared a more extensive framework comprising a survey of 74 questions, corresponding guidance notes and scoring methodology. This was rolled out on an ICT platform, custom-built for the project, to which each of the 20 participating State IPAs was given unique log-in credentials. State IPAs were asked to submit authorized documents, videos, and web-links as evidence and responses. The goal is to draft comprehensive reports for each state, with customized recommendations for improvement, and one-on-one technical advisory sessions to take the IPA to the next level of preparedness.
Among its many achievements, the project was successful in motivating State IPAs in adopting globally benchmarked good practices to strengthen their Investment Promotion and Facilitation preparedness. The new procedures implemented by the agencies resulted in a significant improvement in the services delivered to investors.
A description of the advocacy efforts to support the reform (What type of outputs did the IPA prepare for relevant stakeholders (i.e. research notes, policy notes, white papers, legal reviews and amendments, capacity building and/or information sessions, follow up, meetings, consultations, hands-on advocating/“lobbying”, etc.);
In addition to the assessment reports delivered during the Phase I of the project, the team also organized extensive capacity building activities. Three national capacity building workshops for Indian State IPAs across the country were conducted in partnership with the World Bank Group. The objective was to give Indian IPAs an opportunity to benefit from global expertise and globally benchmarked good practices in key areas of Investment Promotion and Facilitation. In addition, it was important to bring all the agencies on a single platform for experience sharing. To coach the State IPAs on the reforms to be introduced, Invest India prepared and shared templates on topics such as writing an IPA’s strategy, preparing SOPs etc. that could be customized easily to suit the operational mechanisms of IPAs. These were shared during several one-on-one training sessions and capacity building workshops organized for State IPAs.
A description of the impact of the reform and its results;
The achievements of this program are considerable: 8 states drafted IPA Strategy documents, 6 states drafted Strategies for Aftercare Services, and 17 states prepared 76 Standard Operating Procedures (SOPs) to institutionalize different processes. Some state IPAs such as those of Punjab and Gujarat, aligned their investment attraction strategy in terms of targeted countries and sectors. A signification improvement was observed in the main investment promotion websites of states such as Kerala. Noteworthy steps in the direction of scaling up the size and value offering of investment promotion teams have been taken by some state IPAs such as those of Uttar Pradesh and Tamil Nadu. Indian State IPAs, such as the one for Odisha, have institutionalized the use of ICT tools such as CRM. State IPAs are increasingly focusing on upcoming areas of interest such as contributing to the Sustainable Development Goals and capitalizing on opportunities in hybrid sectors. Today, the role of a State IPA has been recognized as an important factor contributing to ease of doing business in a state.
A description of lessons learned on the importance of the advocacy function generated by this experience.
The activities conducted under this project during these last three years were an extremely useful educational experience for Invest India. If a State IPA is to create a positive impact on the business environment of a region, policy makers and other critical stakeholders must be brought onboard. During the implementation of the project, Invest India benefitted immensely from the experience and knowledge of global experts in the field of investment promotion and facilitation, as well as from some of the international best practices of other IPAs. While advocating for reforms in State IPAs to State Governments, it was critical to have clear guidelines, templates, case studies, and frameworks that could serve as examples of successful and impactful implementation practices.
CINDE: Costa Rica's Case Study on Policy Advocacy - Free Trade Zone Regime Amendment Process
CASE STUDY IN A NUTSHELL:
Two stage reform to the Free Trade Zone Regime (FTZ} intended to address the OECD-BEPS substance and transparency criteria, as well as potential ring – fencing features:
- The first stage of the reform was implemented by means of an amendment to the FTZ Regulation (Reglamento a la Ley de Zonas Francas). This reform addressed the substance and transparency recommendations issued by the OECD.
- The second stage of the reform, addressing potential ring fencing issues, required an amendment to the FTZ Law, which was approved by the Costa Rican Congress.
RELEVANCE OF THE CASE STUDY:
For over 30 years, the FTZ Regime has proven to be one of the country’s most successful public policy tools on FDI attraction. Over the years, the Regime has helped the country increase its resilience, diversify its exports, transform its productive structure, and generate quality employment.
Moreover, the FTZ is known to be a stable policy tool, providing investors with a clear framework and legal certainty. In this line, the FTZ has been subject to two important reforms:
- Back in 2008, the FTZ was subject to an amendment driven by the principles of the World Trade Organization (WTO} on export related incentives.
- In 2017, in line with Costa Rica’s participation in the Inclusive Framework initiative of the OECD, the country had to ensure that the Free Trade Zone Regime was BEPS compliant.
For these purposes, in 2017, Costa Rica undertook a technical review process before the OECD with the aims on ensuring that the FTZ did not allow MNE’s to implement aggressive tax planning strategies aimed at exploiting gaps and mismatches in tax rules to avoid paying tax. The regime was therefore examined under the BEPS principles and standards.
As a result, punctual adjustments were recommended by the OECD to guarantee the compliance of the regime with BEPS. The recommendations were namely related with substance, transparency and “ring – fencing”. Countries unwilling or unable to address the potentially harmful features of the Regime, risked being considered a non – compliant country, with its associated impacts on country – reputation, investment climate, as well as international listings.
THE ROLE OF CINDE AS POLICY ADVOCATE:
Since the FTZ amendment process derived from OECD recommendations, it was a government – lead process. However, CINDE actively participated as technical expert; as well as strategic liaison, positioning the amendment process within the key networks. Because of the importance of the FTZ Regime as an FDI attraction and policy tool, CINDE needed to ensure that none of the amendments could negatively impact Costa Rica’s investment climate.
The approval of the reforms, both at a Regulation and Congress Level, made local MNE’s worry about the stability of the Regime. In this sense, CINDE’s leadership on stakeholder management was key to the success of the process. Moreover, the negotiation and calibration of this structural change with established companies, was also coordinated by CINDE.
In sum, CINDE’s policy advocacy efforts in this initiative can be summarize in three key main areas:
- Technical expert, providing benchmarks, carrying impact and foresight analysis, to ensure the reform did not harm the investment climate.
- Stakeholder Manager, conveying and positioning the needs and positions of the industries within the process.
- Strategic Liaison, facilitating and organizing workshops between Government and MNE’s, to ensure proper communication and feedback channels.
IMPACT OF THE CASE STUDY:
Costa Rica was able to successfully adjust its Free Trade Zone Regime and ensure that this fundamental piece in the investment climate is strengthen and remains operational, without negatively impacting the FDI ecosystem. As a result, Costa Rica has a Free Trade Zone Regime, which is considered as fully compliant and aligned with international standards, both from a services and manufacturing standpoint.
As an IPA, it is fundamental to proactively design and implement strategies aimed to positively impact and foster policy transformation and business climate improvement. Thus, CINDE has included policy advocacy as a key topic on is agenda and has undertaken an active role as facilitator and technical expert in dialogue processes. In such, CINDE’s role is namely related with connecting influential networks, leaders, stakeholders and ultimately, decisionmakers, with the aims of addressing relevant policy issues.
As a result of this strategic and proactive process, important policy changes on business climate improvement and facilitation have been implemented, with more on the pipeline.