SEEMA MUSTAFA | 23 JANUARY, 2015
INDIA STILL TO SEDUCE U.S. BIG BUSINESS, CHINA REMAINS PREFERRED DESTINATION
‘Make in India’ fails to impress foreign investors
NEW DELHI: In the walk up to US President Barack Obama’s visit the usual spin about India being a dream destination for American business is being churned out for the susceptible media. The visit will open all doors, and US business will come pouring in is the deliberate illusion created by the spin masters seeking to put an economic gloss on the visit as a door opener for the same.
And to drive home the point the spin seeks to place India as an economic counter to China with MF and World Bank statistics being reeled out by the government to insist that India will surpass China’s growth by 2016-2017. Advance business teams from the US have been visiting Indian cities before their Presidents visit, to explore the market and avenues for investment. Has there been a change when they last visited, is the question many of these teams were seeking an answer to and sources said that the response has been very much around: “well there are many promises, nothing visible as yet on the ground, so let us see what happens when it happens.”
It is no secret to the business community, but clearly kept away from the media per se, that foreign direct investment from the US in India has decreased substantially over the years. The US was the fifth largest investor in India and its FDI fell from nearly $ two billion in 2010 to $800 million last March---a dramatic fall by any standards. This was in direct response to the absence of modern infrastructure, the long bureaucratic delays inbuilt into the system, and as the corporate sources said, “the inability to pass crucial economic reforms.” This decrease is attributed to the falling investor confidence in India, attributed to a host of factors.
Elaborating in a lay persons terms, the sources said, that every step taken by an investor in India was hazard ridden. A company puts in Rs 5000 crores in building a road for instance, and finds a change in government in the state opens this project to adverse political scrutiny; poor infrastructure; all kinds of taxes and the need to obtain numerous clearances; corruption at all levels were some of the examples given for the unfriendly environment in India against foreign investors. At the end of the day, the sources said, a US company will assess the effort required to do business in India and “more and more companies prefer to take their offers elsewhere.”
Corporate heads have been quoted in the international media as saying that the slowing down of investment in the recent past “was due to deflating investor confidence in the Indian economy caused by multiple factors including slow decision making on the policy front, regulatory challenges in different sections and retroactive changes in tax law.” The new government has been promising to take quick decisions but the sources said that nothing was as yet visible on the ground. And that most investors had decided after the recent assessment to adopt a “watch and wait approach” and not rush to follow on President Obama’s visit with offers of investment.
Prime Minister Narendra Modi in his meetings with business heads during his visit to Washington last September had reeled out several assurances. However, not much is visible as yet on the ground, the sources said. The ‘Make in India’ slogan that the PM came up before the US visit has been described as “awkward” in the American media, and has not been able to cut into investor cynicism that has only grown over the years and months. There was pressure on him during his interactions with the business community in Washington to take measures that would convince the investors that his government was indeed pro-business and that the rules had been changed to be simpler and more business friendly.
The comparison with China is dismissed with derisive comments by US investors who see “no comparison” between the two. The sources said that the US companies far preferred to invest in China and confidence in its business environment had only grown. in 2014 China’s GDP stood at $10.36 trillion as against India’s $2.05 trillion. Besides, India accounts for a little over 2 per cent of the global economy as against China’s share of 12 per cent.
Peoples Democracy has pointed out that “both the World Bank and the IMF are notorious for scaling down their forecasts after generating the `feel good factor’ to artificially hike up the stock markets” and that their figures of growth certainly “do not capture the real story. Instead, “India emerging as the fastest growing economy” is hyped up to feed the ever growing illusions amongst our people.” At the same time both financial institutions have called for greater reforms maintaining that “sustaining the pace of reform is essential for growth momentum.” And that the “key is going to be implementation.”
Ironically even though locally political parties have criticised and the media praised the “flurry of economic reforms” initiated by the government through the controversial Ordinance route, this has not yet convinced the investors that change is in the offing. The Hindustan Times commented editorially, “fuel prices have been decontrolled; foreign investment norms in insurance have been eased; disinvestment is on track with the promise of more floating shares in our stock exchanges; a new coal allocation policy is in place; and the Centre is in the last stage of discussions with states for a unified goods and services tax. … Having begun well, the government will now have to go the distance.”
The Ordinances and the attempted reforms agenda has agitated the opposition parties who have been campaigning against the Modi government’s neo-liberal policies. But it has not convinced the investors that enough has been done as yet, and as the sources said, many such start up efforts have ended in failure in the recent past. Finance Minister Arun Jaitley fielded questions from the international business community at a high level dinner recently. He was reportedly told that while a majority of CEO’s want to do business in India but were hesitant because of the crumbling, Jaitley felt that the measures taken by his government would soon kick in and make a difference on the ground.
As Reuters summarised it after the Vibrant Gujarat summit that the Indian media had projected as an Aladdin Cave with all the treasures lying inside, the consensus that really emerged insofar as interactions with the international business community present was concerned is that “ India must tackle its crumbling infrastructure, stifling red tape and lay out clear policies if it is to attract the billions of dollars of outside investment it sorely needs.” This despite the fact that President Obama will be travelling to India with a large business contingent who will be looking closely at PM Modi to determine whether this was more than just a free ride for them.