India Inc is asking for a level playing field, a demand that it raised twenty two years ago. Leading industrialists then met at the Belvedere hotel in Mumbai to demand greater parity with foreign capital. Economic reforms since the early 1990s have steadily transformed India from an inward-looking dirigiste economy to a more outward-looking market-driven economy. Industrial groups like the Tatas and Birlas were initially hesitant but responded by scaling up to meet global competition through overseas acquisitions. But frustration is now growing at the uneven playing field in the country of late.
Is there a policy tilt more in favour of foreign capital? Such a perception has perhaps only strengthened with PM Narendra Modi’s extensive foreign travels to attract big-ticket FDI help build infrastructure like bullet trains, dedicated freight and industrial corridors and smart cities. Special cells are being created to fast-track FDI from the US, Japan and China while there is no such facility for domestic investments. India needs massive investments in ports, roads, highways and airports, but its entrepreneurs who have modernised or built its airports are seeking investment opportunities abroad.
Paradoxically, foreign investors — especially from Germany — are also pitching for a level playing field for their companies and a stable, predictable policy regime to help them take investment decisions in India! Foreign investors (like their domestic counterparts) will indeed be wary of investing in the country if they have to experience the decade-long wait to secure the necessary permissions and clearances to set up a green-field integrated steel project that South Korea’s POSCO wanted to do in the state of Odisha. That stillborn venture represents one of the largest FDI projects in India to gather rust.
Indian industry is irked by the preferential treatment being given to overseas businessmen by state governments like Maharashtra. A case in point is the generous incentives to secure the $5 billion investment proposal from Foxconn, the world’s largest contract manufacturer of gizmos like iPads and iPhones, which would generate 50,000 jobs in the state over the next five years. An industrialist told a leading newspaper in the country that the state government must stop begging for FDI. And if it wants to develop manufacturing, then it should give the same benefit to Indians, he added.
Moody’s has only flagged a serious concern of both foreign and domestic investors : the growing mood of intolerance and belligerent statements by members of the ruling political party is hardly conducive for harmony which is necessary for investments to flourish. Stability is not only political but also social in nature.
Four years ago, Kumar Mangalam Birla, head of the aluminium to mobile telephony $41 billion Aditya Birla Group expressed the same anguish in his JRD Tata Memorial lecture: “We must extend the same attention, priority and courtesy that we give to foreign direct investments to investments by domestic entrepreneurs”, he said. As India’s first MNC that derives half its revenues from its far-flung international operations, the Aditya Birla Group has several options to make big-ticket investments abroad if domestic opportunities dry up or are bogged down in an uneven playing field.
If India Inc decides to push abroad instead of investing domestically, it will obviously have serious consequences for India that is the fastest growing economy in the world. During the five months of 2015-16, India’s outbound FDI was identical to what went out in 2014-15 as a whole. Such outflows trebled to $1.7 billion in April-August 2015 when compared to April-August 2014, according to the RBI. Clearly, the NDA government needs to introspect on why Indians are not investing more in India even though it is far more pro-business and pro-reform than the UPA was in its two-terms in office.
At another level, Moody’s Analytics has indicated why investors are wary of conditions for doing business. During UPA II, its report in 2012 considered the government itself as the single biggest factor weighing on business confidence and economic outlook in the country. Now, in its latest outlook on India, it warns of ethnic tensions. That along with a possible rise in violence, the NDA will face stiffer opposition in the upper house on reforms as debate increasingly turns away from economic policy. PM Modi must keep his members in check or risk losing domestic and global credibility.
True to form, the NDA government has promptly shot the messenger and dismissed this report as the handiwork of a lowly junior associate economist! But that would be a terrible mistake as the message is true. Moody’s has only flagged a serious concern of both foreign and domestic investors regarding the deteriorating environment for doing business in the country: the growing mood of intolerance and belligerent statements by members of the ruling political party is hardly conducive for harmony which is necessary for investments to flourish. Stability is not only political but also social in nature.
Behind all this talk of a level playing field, corporates – domestic and foreign – are concerned that fringe elements are not being reined in by the ruling NDA government. These elements are disturbing the freedom of writers, artists, intellectuals and communal harmony. If these are not checked, this factor can single-handedly destabilise whatever good work the present PM wants to do on the development front. Development needs an atmosphere of social peace. There is no way that the former can go on unimpeded when religious and ethnic fault-lines in society start widening dangerously.
For such reasons, the ground is virtually unplayable for businesses to take a long-term bet by investing in the economy. The tilt is not against India Inc or in favour of MNCs as popularly believed but against both. The prospect of rising social tensions will definitely divert the energies of the government. There are already indications that PM Modi will have to respond to the issues raised by Moody’s Analytics when he visits the UK.
If the India story begins to lose its lustre, this will obviously dampen the so-called animal spirits of both foreign and domestic businesses, especially the leading lights of India Inc who will seek out opportunities in other geographies. The playing field is level only when India becomes more attractive as a place to do business and the investment climate improves significantly in a harmonious social setting. Sadly, it is not so at present.
(The author is an economics and business commentator based in New Delhi)
