For reasons ranging from colonial hangover to an affinity towards socialism, India has always been suspicious of foreign investment. While there has been a change in mindset post liberalisation in 1991, doubts continue to stay put. And, for obvious reasons, these doubts are more about Foreign Direct Investment (FDI) than Foreign Portfolio Investment. While some feel all foreign investors want is exploit India’s resources, others claim foreign investment kills the entrepreneurial spirit among Indians. Successive governments have only strengthened such public opinion by dishing out step-motherly treatment to FDI. But aren’t such views myopic? Could India have attained what it has with zero FDI? On the other end of the spectrum, is FDI an answer to all of India’s economic woes? Presenting to you a detailed The Dollar Business analysis
Sisir Pradhan | June 2015 Issue | The Dollar Business
Till the late 1990s, Kedarnath Mantry, a betel leaf trader of Jagatsinghpur district in the eastern Indian state of Odisha (erstwhile Orissa), used to make a handsome living. His business involved buying betel leaves from local farmers, cutting them into different sizes, packing them in bamboo baskets, and sending them off to his clients in Mumbai by train. Speaking to The Dollar Business, Mantry recalls, “Betel leaves are perishable goods. On their way to Mumbai, they used to go through many hands, but the entire delivery mechanism was so meticulous and coordinated that I never had to travel to Mumbai myself, neither to ensure timely delivery nor receive payment.”
But with the turn of the millennium, Mantry’s fortunes started nose-diving. Not that Mumbaikars had suddenly stopped chewing paan, but because Beijing had won the bid to host the Summer Olympics in 2008 and the US had just bombed Afghanistan into the Stone Age. What’s the connection? Well, both Olympics-related construction activities in Beijing and re-construction activities in Afghanistan had seen the demand for metals and minerals going through the roof. And to meet this demand, lot of eyes turned towards Mantry’s state, which is home to massive amounts of high quality iron ore and bauxite reserves. What followed was nothing but chaos.
Landing in soup
Eyeing Odisha’s natural gifts, South Korean steel major POSCO signed a Memorandum of Understanding (MoU) with the state government and promised to bring in $12 billion – the largest ever FDI into India – to setup a 12 MMTPA steel plant in the state. On its part, the state government promised to hand over 6,000 acres of land to the company, which included government as well as private land. “Acquisition of private land will be taken up on priority,” the MoU still reads. But this wasn’t going to be easy. Till then, when it came to land acquisition, India was governed by a 19th century British law, which had more holes than a mosquito net. So, when acquiring all of the required land started looking difficult, primarily because local villagers were not willing to be uprooted from their forefathers’ lands in exchange of money, the state government resorted to force, and what ensued was an all-out uprising against it. “In Mumbai, yellow betel leaves used to fetch more money than the green ones,” Mantry rues, while explaining the destruction to life, property and farms, including betel leaf farms, which followed POSCO’s arrival in the state.
What happened with POSCO in Odisha is not an isolated case. Many mega industrial projects in India are, today, facing inordinate delays or have been shelved altogether due to such delays. An example of one such project was a proposed $12 billion investment by ArcelorMittal to build an integrated steel plant and captive power plant in Odisha, which the steel major pulled out of two years back citing delays. So, is it that there’s an aversion to foreign investment in India? Why then was Tata Motors forced to pull out of Singur?
Permanency
Many claim the world changed forever after World War II. But as they say, the more things change, the more they stay the same. For, while World War II saw the political map of the world getting redrawn, the West continued to be the centre of power. The war couldn’t bring to an end the powers that the West had been wielding for centuries. It couldn’t change the fact that the real generals were not the ones in uniforms, but the General Motors and General Electrics of the world. Realising this and the fact that attaining independence was one thing, but making something out of it were entirely different ball games, many newly independent nations started wooing MNCs from the same countries that they had fought for centuries. For, these countries were not only dry of resources, but also technical knowhow.
India, on the other hand, was charting an entirely different course for itself. With USSR as an ally, and Nehruvian Socialism as the core economic principle, for most of the first half-century of its independent existence, India kept shooing away foreign investment and in fact, took great pride in doing it. The way the Moraji Desai government drove Coca-Cola and IBM out of the country, in the late 1970s, continue to be part of the nation’s economic and political folklore. So, for decades, while most Asian nations were leaving no stone unturned to attract foreign investment and were reaping its benefits with both hands, India was suspiciously looking at everything ‘foreign’ and trying all tricks in the book, and many beyond it, to block the flow of any kind of foreign investment into the country. And then the Berlin Wall fell!
Welcoming dragon
In the 1970s, when India was putting in all its might to shoo away FDI and the 1980s, when it was taking the first tentative steps towards inviting FDI into the country and the first Maruti cars were rolling out of Gurgaon, a traditionally closed economy like China was already taking giant steps towards becoming the top FDI destination in the world. With Deng Xiaoping at the helm of affairs, China was in the midst of massive economic reforms that laid the foundation of the economic behemoth that it is today. Particularly, in its southern regions of Xiamen, Shantou, Shenzhen, Zhuhai and Hainan, the People’s Republic was creating special tax concession and tax-free zones for investors who were ready to share revenue and technical knowledge. These incentives, clubbed with an opportunity to tap a huge market, were generating lots of interest among foreign investors, who poured in money as if there was no tomorrow. The result? Consistent double-digit GDP growth for the following couple of decades.
Economic casteism
Today, all nation states can be clubbed under either of three groups. The first group comprises nations that have reaped immense benefits of globalisation and hence, have become champions of FDI. Most of the West and countries like Singapore fall in this category. The second group comprises countries that have missed the bus due to archaic ideology, but despite this, consider globalisation to be, at best, a necessary evil. Countries like India, which belong to this category, want FDI, but are not willing to give it the same treatment as domestic investment. And then in the third category are countries like North Korea.
With absolutely no controversies surrounding FDI in the countries that belong to the first category, and no question of any serious FDI into the countries that belong to the third category, most debates about the pros and cons of it are, essentially, restricted to countries that belong to the second category. But even here, while most developing countries are starting to treat foreign and domestic investment equally, India continues to act cagey. Speaking about such differential treatment to FDI in India, Dr. Niti Bhasin, Assistant Professor, Delhi School of Economics, says, “In India, there is a huge differential of 10% between the statutory corporate tax rate for domestic companies and foreign companies. If we look at most other emerging market economies or developing Asian economies, the rate of corporate tax is uniform for domestic and foreign companies.” Isabelle Joumard, Senior Economist and Head of India Desk, OECD's Economics Department also believes that the Indian tax system is the biggest impediment in the country attracting more FDI. “The complexity of the Indian tax system and frequent changes in tax laws have discouraged both domestic and foreign investment in the country. Costs and time needed to comply with the tax system are relatively high in India. Predictability and efficiency in the resolution of tax disputes are key features of a tax environment conducive to attracting and keeping FDI,” she tells The Dollar Business.
India’s step-motherly treatment to FDI doesn’t end with just taxation. The country’s laws impose restrictions on the stake a foreign investor can have in a company, depending on which sector it operates in. So, while as a foreign investor, you are allowed to hold 100% stake if you are a bank, you are allowed to hold only 49% stake if you are an insurance company, thereby giving up management control! And if you are into operating retail malls, well, you are not welcome!
Increase in FDI limit from 26% to 49% in the defence sector is a step in the right direction. This step broadens the envelope for India’s vibrant private industry to tie-up with international original equipment manufacturers (OEMs) for opportunities where controlling stake is not central to the business case, especially in light of ‘Buy & Make (Indian)’ focus on defence procurement. However, just changing the cap from 26% to 49% does not change the control in the venture; therefore, cases where the controlling stake is essential for the business case, such as where cost of developing technology is not sufficiently liquidated or where control of IPRs is crucial, this change may not be sufficient to unleash a new wave of FDI. As defence manufacturing industry is complex and requires significant investment in R&D, quality systems, and manufacturing technologies, many manufacturers may not risk the loss of control in a venture by holding less than 51% equity.
Friends forever
Foreign investment can come into a country in two forms – Foreign Portfolio Investment (FPI) and Foreign Direct Investment. While in the first case, a foreign investor invests in an Indian company, in the second case, a foreign investor directly sets up its business in India. For example, if British Petroleum buys a stake in Reliance Industries, it is considered FPI, while if British Petroleum sets up its own refinery in India, it is considered FDI. While both FPI and FDI bring in capital into a country, and are ultimately seeking returns, the former brings in only capital and can exit at the drop of a hat, while the latter brings in capital as well as technical knowhow and is more permanent in nature. For example, if British Petroleum buys $1 billion worth of Reliance Industries' shares, all India gets is those $1 billion. Neither the company, nor the country, get British Petroleum’s technology. And British Petroleum can sell its shares in Reliance Industries to a willing buyer and exit the country any moment. On the other hand, if it sets up a refinery in India by investing the same $1 billion, not only does India get those $1 billion, but also a lot of downstream companies, which would supply goods and services to the British Petroleum refinery, get a chance, to a certain extent, to understand and use British Petroleum’s technology. At the same time, having set up a refinery in India, it won’t be easy for British Petroleum to wind up its operations and completely exit the country, if and when it wants.
Moreover, since FPI involves just capital, it generally comes from mutual funds, hedge funds, trust funds, insurance companies, and even banks, which essentially are financial investors and have absolutely nothing to do with the technological upgradation of an economy. On the other hand, since FDI comes from only existing businesses, from some of the world’s best companies, they bring in a lot of technological knowhow to an economy. Hence, most countries, generally, prefer FDI over FPI.
Although even India prefers FDI over FPI, for several reasons, it has been more successful in attracting the latter. The reasons for this are many. Firstly, given where India ranks in the Ease of Doing Business Index, most foreign investors prefer to invest in an Indian company, instead of dirtying their hands in the difficult business environment in India.
Secondly, given the regular flip-flops that successive governments in India have done in tax laws, foreign investors, probably, want to come in via the financial markets, and have the option to easily exit, than being saddled with billions of dollars of retrospective taxes.
Thirdly, since India is not really known for being a protector of intellectual property rights, many potential investors are wary of transferring their technology to an Indian subsidiary.
Inward FDI into India remains very low (at around 2% of GDP) as compared to other peer countries. While India has gradually opened up and removed restrictions on FDI, a number of sectors still remain subject to approvals and limits on ownership. Recently, Indian authorities have taken several steps to further liberalise the FDI regime, in particular in railways, infrastructure, construction, defence and insurance sectors. Despite these positive moves, for India to become a major recipient of FDI and reap the benefits of it, significant improvements in business environment, infrastructure and connectivity, as well as further structural reforms are needed.
Nail in the coffin
In May 2007, Hutchison, which is a Hong Kong-based group and had setup a holding company in India through a listed company in Hong Kong (which in turn held shares in downstream companies in the Cayman Islands, which held shares in downstream companies based in Mauritius), sold its stake to UK’s Vodafone. Since India has a double tax avoidance treaty (DTAA) with Mauritius, this deal shouldn’t have attracted capital gains tax in the country. But in 2012, the then Finance Minister Pranab Mukherjee proposed amendments to the Income Tax Act, with retrospective effect, in order to assert the Indian government’s right to levy tax on mergers and acquisition (M&A) deals involving overseas companies with business assets in India. Although Pranab Mukherjee, now President of India, went out of his ways to convince foreign investors that the move was not Hutchison-Vodafone deal specific (the tax claims of the government were later struck down by the Supreme Court of India), the decision to bring in retrospective amendments to tax laws dealt a death blow to whatever little credibility India had to attract serious FDI into the country.
While damages to India’s chances of attracting FDI has already been done, Chris Devonshire Ellis, Chairman, Dezan Shira & Associates Asia, has some simple advice for Indian policymakers if they really want to gain lost credibility and attract serious amounts of FDI. “Stop retrospective actions on taxes. Lower the tax rate to 30%. Offer additional incentives to foreign companies that are willing to engage in technology transfer with their Indian partners. And once these policies are in place, just leave them alone for a decade or so, and don’t interfere,” he tells The Dollar Business, trying to pass on his message to the Indian government.
Similarly, Paul Cashin, IMF Mission Chief to India, although not as blunt as Devonshire, thinks India needs to do a lot if it really wants to benefit from FDI. “For India to become a major recipient of FDI and reap the benefits of it, significant improvements in business environment, infrastructure and connectivity as well as further structural reforms are needed,” he tells The Dollar Business.
Why the fuss?
Having made a case for the argument that if India wants to attract serious amounts of FDI, it needs to undertake massive reforms, let’s go back to the basics. How important is FDI for India? Is it absolutely mandatory if India wants to achieve higher levels of economic growth? And there’s nothing better than analysing empirical evidence in order to arrive at an answer to these two questions. Let’s do that. The highest amount of FDI that India has ever received in one single year is $23.5 billion in FY2012. Did it lead to high growth? Of course not, as the year saw the country’s GDP growth slump from 8.9% in the previous year to just 6.7% – the same as the GFC year of FY2009. And for those who argue that FDI, or any investment for that matter, has a lag effect, the following couple of years’ GDP growth rates of sub-5% don’t really make the case for FDI any better. But c?ter?s paribus, shouldn’t more FDI lead to higher growth? Of course it should, but for a $2 trillion economy like India, a few single-digit billion dollars of FDI are just a drop in the ocean and can do almost nothing to change the country’s growth trajectory, particularly when India’s Gross Capital Formation, with or without FDI, is one of the highest among all major world economies, only below that of China and Indonesia, and India's household savings rate is one of the highest in the world.
Similarly, the go go years between FY2005 and FY2008, when India achieved some of its highest rates of growth, the flow of FDI into the country was in single-digit billion dollars – just a fraction of what the country was receiving in the sub-5% growth years!
While India has a somewhat formidable household savings rate of 30%, most of this domestic capital has historically failed to enter into the financial system. Hence, financial sector reforms encouraging more active use of bank accounts by consumers and more efficient allocation of financial capital will be an essential part of this growth story. However, the scale of investments that will be required to enhance India’s human capital, physical infrastructure and digital infrastructure, necessitates the need for injection of capital from foreign investors besides investments from private domestic and government sources.
So, is FDI irrelevant to India? Well, senior Congress leader Mani Shankar Aiyar thinks so. “We need to understand that for a continental economy like that of ours, FDI will not have as much importance as in case of other countries,” he tells The Dollar Business. On similar lines, Social Activist Medha Patkar believes growth and development can never be sustainable and equitable when FDI is involved. “Under FDI, the pressures are different and the agreements are influenced by these pressures. Foreign investors exert a lot of influence, and laws are compromised to push the projects,” Patkar tells The Dollar Business, explaining why she and the National Alliance of People’s Movements are against most of the foreign direct investments in India.
Only money, no honey
For the proponents of FDI, however, the arguments of Aiyar and Patkar hold no ground. They believe FDI is not just about capital, but about technology as well. And having missed out the industrial revolution of the 19th and the 20th century, India has no option but invite FDI if it doesn’t want to remain an also ran in the world. Proponents of FDI also cite that there’s barely any country that has not benefitted from FDI and most of India’s concerns regarding it are nothing but paranoia. “Most countries that have received FDI would regard it as beneficial. It is widely recommended by multilateral agencies as a means of boosting the economy of emerging markets. FDI provides competition to incumbent national champions and/or create new industries that were not present earlier, Sean Laughlin, Executive Director, Global FDIA, tells The Dollar Business, explaining the benefits of FDI. Making a similar point, Dr. Bhasin says, “Once FDI comes into a country, there are spillover effects in terms of technology transfer, improvement in export competitiveness of domestic products, employment generation, and benefits to consumers.”
Let’s take the example of some benefits that India has reaped, thanks to such technology transfers. Brahmos, India’s supersonic ‘fire and forget’ cruise missile, wouldn’t have become a reality if India’s Defence Research and Development Organisation (DRDO) and Russia’s NPO Mashinostroyenia had not entered into a (50.5:49.5) partnership in 1998. Similarly, had India not opened up to FDI in the 1980s, although in a limited way, millions of middle class Indians wouldn’t have been able to drive a car in their lifetimes. More importantly, had India not invited FDI from Nauru – a small Pacific island nation and a major supplier of phosphate to India in the 1970s – and setup a joint venture to manufacture phosphate fertilisers in the country, Green Revolution would have never taken place, and the country would have neither been able to eradicate hunger, nor attain self-sufficiency in food, within just three decades of attaining independence.
Clipping wings
Now that we have proved that despite a lot of lacunae and not being the answer to all of India’s economic woes, the benefits of FDI definitely outweigh its negative effects, let’s take a look at the current state of affairs.
Today, one of Government of India’s stated intents and objectives is “to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth.” To enable this, all non-Indian entities, except those from Pakistan and Bangladesh, are allowed to invest and own 100% stake in Indian entities, except in lottery business, including government/private lottery and online lotteries; gambling and betting, including casinos; chit funds; nidhi companies; trading in Transferable Development Rights (TDRs); real estate and construction; manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes; and activities/sectors like atomic energy and railway operations that are not open to private sector investment. On the other hand, certain sectors have a cap on FDI investment. These sectors include defence (49%); teleports, DTH and mobile TV (74%); cable networks (49%); news & current affairs TV channels (26%); newspapers and periodicals (26%); domestic airlines (49%); private security agencies (49%); multi-brand retail (51%); banking (74%); commodity exchanges (49%); credit information companies (74%); securities market infrastructure (49%); insurance (49%); and power exchanges (49%). At the same time, while investing in some of these companies with caps need prior government approval, in some others, a foreign investor can invest without any prior government approval as is the case with all sectors in which 100% FDI is permitted.
The question that then arises is just what is the logic for having investment caps in sectors like insurance, airlines and multi-brand retail? If the government can trust multinational banks handling Indians’ savings, why can’t it trust multinational insurers underwriting an Indian’s insurance? Do Indians really care who owns the plane they are flying in as long as they can fly cheap & safe? [Actually, safe & cheap.] And of course, if an MNC can own 10 different single brand stores in one shopping mall, just what is the logic to prohibit it from selling the same 10 brands under one roof? While the government perhaps has answers for each of these questions, the reality is that such caps are nothing but a function of lobbying by domestic monopolies and myopic vision.
A victim of such caps, Amit Agarwal, VP & Country Manager, Amazon India, thinks India should urgently fully open up the multi-brand retail sector to FDI. “We believe opening up this sector to FDI will be good for consumers and Indian businesses as it will allow us to partner with local manufacturers to source products not carried by other sellers on the marketplace, giving Indian consumers unique and wider choices at lower prices,” he tells The Dollar Business. Agarwal feels the spillover effect of opening up the multi-brand retail sector to FDI will be immense. “Allowing FDI will also positively impact infrastructure development in the country,” he adds. On the other hand, Pratyush Kumar, President, Boeing India, feels it’s irrational for the government to expect serious foreign investment in the defence sector with an investment cap of 49%. “As defence manufacturing industry is complex and requires significant investment in R&D, quality systems, and manufacturing technologies, many manufacturers may not risk loss of control in a venture by holding less than 51%,” Kumar tells The Dollar Business.
The government’s policy to impose caps on the FDI in certain sectors, however, has a few supporters. For example, Ajit Banerjee, Chief Investment Officer, Bharti AXA General Insurance, a JV between the Paris-based AXA Group and India’s Bharti Enterprises, in which the former has recently got the Foreign Investment Promotion Board's (FIPB) approval to hike stake to 49%, feels gradually opening up the insurance sector to foreign investors is not a bad idea. “Before opening up the sector, the insurance industry needs to be in line with the requirements of the international market. I am sure, once India reaches that level, the market will gradually open up,” says an optimistic Banerjee.
Black hole
While tax related flip-flops, shareholding caps and painful land acquisition laws, etc., are some of the most important issues affecting FDI in India, the root for it being suspiciously looked at in the country, lies in the tiny Indian Ocean island of Mauritius. For, although India has double taxation avoidance agreements (DTAAs) with 88 countries, a lion’s chunk of the FDI into India is routed through Mauritius as the island nation doesn’t apply tax on capital gains. Hence, if a foreign investor based out of Mauritius invests in India, it need not pay any tax on its capital gains – neither in India because of the DTAA, nor in Mauritius, because the country doesn’t levy tax on capital gains! And many claim that bulk of the FDI that India receives from Mauritius is nothing but Indians rerouting money into the country, in order to avoid paying capital gains tax, thanks to this loophole. “99.99% of all Mauritian investment in India are by Indian companies that are trying to avoid Indian taxes. They have nothing to do with FDI,” Devonshire says, not mincing words. Agreeing with Devonshire, Dr. Bhasin says, “A part of the FDI coming from Mauritius is round-tripped investment by Indian investors taking capital out of the country, and reinvesting through Mauritius to take advantage of tax concessions of the treaty.” Given this, one cannot really blame if large sections of the Indian society look suspiciously at all FDI.
No change
With the Narendra Modi led BJP sweeping General Election 2014 and forming the first single party majority government at the Centre in over two decades, thereby putting an end to arm-twisting by smaller regional parties, the mood in all sections of the Indian economy was nothing short of euphoric. Thanks to Modi’s foreign investor friendly image, a lot of investment waiting on the sidelines to enter India also turned ecstatic. Although the initial burst of foreign capital, as expected, came in via portfolio investments and pushed the Sensex through the roof, even potential FDI investors started making their moves. But while initially, the new government made the right noises by hiking the FDI cap to 49% in both defence and insurance, things started turning sour very quickly.
Firstly, it continued to maintain ambiguity on Minimum Alternative Tax (MAT). While many foreign investors, particularly portfolio investors, expected it to just completely abolish MAT, the government continued to dilly-dally, making them anxious. Commenting on this, Congress’ Aiyar says, “There is no substance to their (government’s) words. That’s why the investors community, whether in India or abroad, simply doesn’t trust Mr. Modi as much as Mr. Modi trusts himself.”
If this was not enough, the government committed a cardinal sin by pushing the amended land acquisition law, not via consultation and debate in the parliament, but via an ordinance. And the protests and opposition that have followed it have only dented the government’s image further. Claiming that the government’s diagnosis of what’s affecting FDI into the country itself is wrong and heavily criticising it for opting for an ordinance for an extremely important issue like land acquisition, Aiyar adds, “Land acquisition has not been holding up investment. Investment has been held up because of number of other factors, of which land acquisition is a small part. And in any case, just in order to facilitate investment, whether it’s domestic or foreign, if you are going to dislodge Indians from their own homes, then it is not just wrong, but is criminal.”
Similarly, claiming that the government’s new land acquisition ordinance is against the interests of the people and is being pushed since huge tracts of land need to be acquired for projects like the Delhi-Mumbai Industrial Corridor (DMIC), Patkar said, “Even the British never said that land can be forcefully acquired even for private projects.”
Doesn't hurt
Like most things in economics, there are many factors at play even when it comes to FDI. While some questions regarding it may have some basis, a lot of the suspicion surrounding it, particularly in India, are either colonial hangover, a pretext to protect domestic monopolies, or just paranoia. Since it is impossible to produce everything that a country consumes, an alternative to FDI is increased imports. However, increased dependence on imports not only drains a country of precious forex, but also adds very little to growth. For, although there’s nothing bad about consumption driven growth, it doesn’t have the same multiplier effect as investment driven growth.
On the other hand, the thinking that FDI is the only answer to all of India’s economic woes is nothing but wishful thinking and living in denial. With one of the highest saving rates in the world, capital is not an issue in India. The real issue is channelising this saving into investments. And in any case, FDI flow into India has never even exceeded 2-3% of GDP. So, unless there’s suddenly a multifold rise in the flow of it into the country, a few billion dollars more or less, won’t really affect India’s growth prospects. But this is no excuse to treat foreign investment any differently from domestic investment, particularly by a country that preaches Atithi Devo Bhava.
If FDI can’t solve all of India’s economic woes, neither will it derail the country’s growth trajectory.
If FDI can't help the Indian economy to grow at double digits, it will never push us into a recession. There’s enough evidence that if anything, the multiplier effect of FDI can only be higher than that of domestic investment. For, technological knowhow that FDI will inevitably bring with it, will spur downstream domestic industries. FDI also leads to better integration with the rest of the world and spurs trade volumes. Agreeing with such arguments in favour of FDI, Dr. Bhasin says, “FDI is expected to have relatively strong effects on economic growth, as it provides for more than just capital. FDI offers access to internationally available technologies and management know-how, and may render it easier to penetrate world markets. These indirect effects of FDI are more relevant for developing countries like India. In addition, FDI can also stimulate new investment through forward and backward linkages. Thus, it is advisable to focus on attracting FDI to not only supplement investment and capital formation, but also to promote economic development.”
The bottom line – FDI is not a panacea, not by any stretch of imagination. But it can only help. It rarely hurts.
“The complexity of the Indian tax system has discouraged both domestic & foreign investment”
TDB: Which OECD members have you found to be the most FDI friendly? Which of the members discriminate between domestic and foreign investment?
Michael Gestrin (MG): Investment regimes across the OECD have largely harmonised and converged over the decades as differences in views among governments over what constitutes ‘good investment policy’ have narrowed. This process has arguably advanced even further between OECD and non-OECD countries as many non-OECD countries have become important sources (home countries) for FDI. Apart from issues related to national security and a handful of sectoral exceptions (e.g. agriculture), most governments do not discriminate on the basis of nationality.
TDB: How would you respond to critics who say FDI leads to monopolies and inhibits entrepreneurship?
MG: It is true that in some circumstances, such as the privatisation of utilities, the arrival of foreign companies in developing countries has given rise to problems with safeguarding competition. When enterprises enjoy monopolistic market power, at least within segments of the local economy, prices rise, quality does not improve, access is not increased and entrepreneurship is stifled. The solution, however, is not to curtail FDI. On the contrary, first-best strategy (particularly, in the context of state divestiture) is arguably to link privatisation, with an opening of markets to greater competition. In any case, there is a need for strong, independent domestic regulatory oversight.
TDB: What do you think are the main reasons for a high growth economy like India not attracting as much FDI as one would have expected?
Isabelle Joumard (IJ): FDI regulations in India have long been relatively stringent, particularly in services sectors. Also reducing India’s attractiveness for FDI are a number of structural bottlenecks, which have weighed on the manufacturing sector, including poor infrastructure, stringent labour regulations, uncertainties surrounding land acquisition and complex tax regulations. In fact, the OECD Economic Survey of India 2014 has a full chapter named "Challenges and Opportunities of the Manufacturing Sector."
TDB: How big a concern is the protection of intellectual property as far as FDI in India is concerned?
MG: Despite improvements, India affords less protection to IPR than other emerging economies. This limits inward FDI and discourages domestic firms from expanding into formal R&D – although India is also deservingly well-known for its jugaad (frugal) innovation. In pharma, in particular, Indian companies show low R&D intensity and new drug discovery; on the contrary, flows of pharmaceutical FDI to India has been highly responsive to IPR improvements and enforcement in the country.
TDB: What does OECD think of India’s tax policy vis-à-vis FDI? Do you think the regular tax related flip-flops have been a major roadblock in India attracting more FDI?
IJ: The complexity of the Indian tax system and frequent changes in tax laws have discouraged both domestic and foreign investment in the country. Costs and time needed to comply with the tax system are relatively high in India. Predictability and efficiency in the resolution of tax disputes are key features of a tax environment conducive to attracting and keeping FDI.
TDB: Your own data claims that OECD members have attracted over 80% of the total FDI in the world, with even non-OECD G20 members accounting for less than 10% of it. What do you think should non-OECD members like India learn from OECD members in order to attract more FDI?
MG: Historically, OECD countries attracted the lion’s share of FDI. In more recent years, however, the situation has changed dramatically. Since 2012, emerging economies have accounted for over 50% of global FDI inflows. The general lessons from OECD countries on attracting FDI relate to the importance of principles of predictability, openness, transparency and rule of law. In addition, more recent thinking has emphasised the importance of understanding specific challenges and opportunities for investors in individual economies that are at different levels of development. For one country, government investment in infrastructure might be the most important factor in encouraging more FDI, whereas for another country, ensuring broader access to primary education might be the key to unlocking future FDI inflows. A successful FDI promotion strategy combines the basics (e.g. sound legal and regulatory frameworks) with policies that are targeted at areas where weaknesses don’t allow for fully leveraging a country’s comparative advantages for attracting foreign investment.
TDB: Why do you think there has not been a big surge in FDI in the last five-six years, despite almost the entire developed world being flushed with liquidity because of ultra-loose monetary policies?
MG: FDI flows in the past five-six years have been very uneven. At the global level, we remain around 40% below the peaks reached in 2007. However, two things need to be kept in mind. First, 2007 was not a normal year. This FDI peak was fuelled by a financial bubble, which then collapsed. Second, in the aftermath of the 2008 financial crisis, Europe was the main region unable to recover from the collapse in global FDI flows. When one looks at the rest of the world outside of Europe, FDI recovered quite quickly and for some countries, especially a number of emerging economies, the post crisis period saw very significant increase in FDI inflows.
TDB: Foreigners have preferred portfolio investment over FDI as far as investing in India is concerned. What do you think are the reasons for this?
IJ: Net FDI to India were particularly low between 2008 and 2013. More recently, however, they have increased as a share of GDP and are almost at par with portfolio investment. This partly reflects recent FDI deregulation measures and improvement in the ease of doing business in the country.
TDB: Why has the manufacturing sector attracted more FDI than the services sector in India, despite the latter doing much better than the former?
IJ: The OECD FDI Regulatory Restrictiveness Index reveals that in India, restrictions on services were more stringent than on the manufacturing sector in 2013.
“Tax terrorism towards foreign investors should stop in India, immediately" - Chris Devonshire-Ellis, Chairman, Dezan Shira & Associates Asia
TDB: What role do tax policies of a country play in attracting or dissuading an investor from investing in that country?
Chris Devonshire-Ellis (CD): Tax policy has a major effect. Taxes affect competitiveness of nations and have a direct impact on not only the cost of the finished product, but also on the manufacturer and ultimately the consumer. If the product can be made more cost-effectively in a lower tax jurisdiction than India, then the consumer is going to buy the lower cost item. However, tax isn’t the only variable in the manufacturing equation, but is among the few that a government can exert immediate control over.
TDB: How big a factor is having a stable and predictable tax regime when it comes to attracting FDI?
CD: Companies need to have certainty in their business models. That way, all aspects of production costs can be accurately factored in and profit margins and consumer targets assessed. If sustainability and costings are uncertain, companies will ultimately cease to invest and will look for a more predictable and stable tax regime.
TDB: What’s your view on FDI related tax policies in three of the major economies of Asia, i.e., China, India and Singapore? What is there in their taxation systems that makes these countries attractive or unattractive FDI destinations?
CD: Singapore is completely different from China and India. So, it is not possible to make a comparison. The dynamics are totally different. However, between China and India, there are many comparisons. China became successful due, in part, to its tax regime and the ability to offer predictable and stable tax policies and incentives. For example, China scrapped inter-state taxes on the internal movement of goods decades ago, India still hasn’t. China introduced a lower tax rate and gave nation-wide incentives, India hasn’t. China created a national tax system that was relatively consistent throughout the country, India hasn’t. So, until India does all this, it will remain behind.
TDB: Given that Mauritius and Singapore are India’s top sources of FDI because of double taxation avoidance treaties, shouldn’t India sign similar treaties with other countries that are open to such deals?
CD: Mauritius offers tax benefits that is only really applicable to Indian companies round tripping investments into India, in order to avoid capital gains tax. 99.99% of all Mauritian investment in India are by Indian companies that are trying to avoid Indian taxes. They have nothing to do with FDI.
Singapore is more important as it offers India a gateway into ASEAN. As a member of ASEAN, Singapore, anyway, has a free trade agreement with India. Indian businesses are in danger of becoming too pre-occupied and small minded to be using Mauritius to avoid Indian domestic taxes. They are not looking at the bigger picture on their doorstep of selling to ASEAN and China. Forget Mauritius. That’s not FDI. Singapore represents inbound FDI and the ability for Indian companies to sell overseas in Asia. CFOs need to ask themselves which is a better use of resources and patriotic development: nickel and diming the Indian tax bureau or having an export sales strategy for Asia?
TDB: While investing in a foreign country, what are the main concerns of an investor? Please share with us instances, if any, of foreign investors not being allowed to repatriate their investments from a country.
CD: A country has to have a sustainable, consistent and attractive tax policies in place. It needs to have a young, dynamic and large workforce. It also needs to have policies in place to allow those people to work, and to have a long-term commitment to infrastructure. The main issue with India is that it has not yet managed to work out how to combine all of these on a national basis.
As for an inability to repatriate investments, the retrospective arguments concerning tax bills being put forward by the Indian tax bureau are essentially an attempt to deny foreign investors their profits and any ability to repatriate them. Even Communist China never tried this! The Chinese knew that if they did this, foreign companies would not invest. So, India has a choice – remain insular and backward or progress like China. Tax terrorism towards foreign investors has to stop or India will remain static, consuming locally made products that no one really want.
TDB: How fairly is FDI generally treated around the world? When it comes to taxation, does FDI get the same treatment as domestic investment?
CD: It varies across countries. Tax can be a moving target, in order to get FDI flowing in. In fact, in China, tax rates for foreign companies used to be lower than that for domestic ones! But at the same time, foreign companies were encouraged to give IP and technical know-how to the Chinese industry. That was a good trade, because it helped Chinese companies develop their skill sets and ultimately compete with foreign investors on a technical level. When that was accomplished – which took about 15 years – China equalised tax rates. That was a great strategy to encourage foreign investment and help upgrade local skills and knowhow. It has worked, so India need not worry about Indian companies being left behind if it adopts such a policy.
TDB: In the world of free floating currencies, isn’t depreciation of the currency of the country in which investments are made a big concern?
CD: I don’t think you can hedge FDI. If you do, it would be a form of currency manipulation. Larger manufacturers can take care of hedging currencies anywhere. Having a treasury department is becoming normal. Companies are used to having currency deviations, and as long as these deviations are within normal trading bands it’s not really an issue.
TDB: The new Indian government has started ‘Make in India’ campaign to boost domestic manufacturing by attracting FDI. What do you think it should do to attract more foreign capital into the country?
CD: Stop retrospective actions on taxes. Lower the tax rate to 30%. Offer additional incentives to foreign companies that are willing to engage in technology transfer with their Indian partners. And once these policies are in place, just leave them alone for a decade or so, and don’t interfere.
TDB: How big a concern is the protection of intellectual property rights (IPRs) when it comes to FDI? Are India’s poor IP track record and slow judicial process also strong impediments in attracting FDI into the country?
CD: Companies can live with these impediments. Most investors don’t want to get tangled up in courts. They run legal businesses and operate properly. And most are well aware of IP risks in Asia. The investors India wants are all those foreign companies that have setups in China. They know how to deal with emerging countries and are used to it and familiar with the risks. India just needs to emulate what China did, which is great news as there is a blueprint that has been seen to work. Just follow that and India won’t go far wrong.
“Except India, most emerging economies have uniform tax rates for domestic & foreign companies” - Dr. Niti Bhasin, Assistant Professor (Department of Commerce), Delhi School of Economics
TDB: With every change in government, tax laws in India change. Do you think that this has had a negative impact on the country’s ambitions of attracting FDI?
Niti Bhasin (NB): Taxation has become an important consideration in FDI decisions in recent times. Frequent changes in tax laws are indeed a disabling factor in the fiscal environment of a country and can adversely affect FDI. There are a number of issues that need to be addressed here. First, there is a lot of ambivalence in many tax laws. The Vodafone tax row is a case in point. The decision of the then Finance Minster to impose a retrospective amendment to tax Vodafone-Hutch like deals sent wrong signals to foreign investors and created an environment of fiscal uncertainty. The provision was later subjected to a review. Another issue that needs to be addressed is the rate of statutory corporate tax. India’s corporate tax rates are one of the highest amongst emerging market economies. Then there is a huge differential of 10% between the statutory corporate tax rate for domestic companies and foreign companies. If we look at most other emerging markets or developing Asian economies, the rate of corporate tax is uniform for domestic and foreign companies. Thus, prima facie, it appears that the cost of doing business in India is high and that might be negatively impacting FDI. The implementation of Direct Tax Code (DTC) and Goods and Services Tax (GST), which are significant reforms required in the area of direct and indirect taxes, has also lingered on.
TDB: Would you say a lot of potential foreign investors might have refrained from investing in the country due to the lack of clarity and uniformity in tax laws and the way various governments play around with these laws?
NB: Yes, I would say that. Some investments might have been driven away due to the introduction of retrospective amendments and laxity in implementation of some important tax reforms like DTC and GST. Any investor would look for some sort of fiscal certainty before investing in a country. If tax related inconsistency continue, it is going to drive away investors to a certain extent.
TDB: Can you give some examples of countries that have really benefitted from FDI and a comparison of their laws vis-à-vis Indian laws?
NB: Malaysia, Thailand, Hong Kong and Singapore are some countries, which have benefitted immensely from FDI. FDI has made significant contributions to these economies in terms of employment, exports and capital formation. Hong Kong and Singapore are the top two countries of the world in terms of Index of Economic Freedom. This is attributable to an efficient and transparent regulatory framework, low rates of taxation, a simple tax system and sophisticated capital markets. Starting a business and associated procedures are simple and straight forward. Their FDI presence, when compared with their GDP levels, is much higher than that of India. India still scores quite low in terms of ease of doing business. Our legal and regulatory framework is weak and uncompetitive when compared with other economies that attract large amounts of FDI. While a vibrant private sector is emerging, its importance is being undermined by bureaucratic controls and procedures, outmoded labour laws and state obstacles.
India can also be compared with China in view of the similarities between the two countries in terms of high growth rates, large sizes and huge populations. While neither of the countries fare well in terms of regulatory framework, China attracts much more FDI than India. Apart from China’s advantage in terms of its sheer market size and low-cost manufacturing, statutory tax in China is comparatively lower than that in India. Moreover, the number and variety of fiscal incentives that China offers to investors are also more than what India offers.
TDB: In India, profit made from FDI is fully repatriable and critics claim that this helps MNCs drain the country’s resources. Do you agree with this criticism?
NB: Allowing full repatriation of profits signals a less restrictive environment and encourages FDI into the country. In addition, because of the long-term nature of FDI, it is generally expected that there would be some amount of reinvestment as well. The argument against repatriation might not be very valid as FDI cannot be evaluated on the basis of capital alone. Once FDI comes into a country, there are spill over effects in terms of technology transfer, improvement in export competitiveness of domestic products, employment generation, and benefits to consumers. And these spill over effects are more profound in case of green field investments than mergers & acquisitions.
TDB: Most of India’s FDI is routed via Mauritius and Singapore, since India has double taxation avoidance agreements with these countries. However, in most cases, investments that come from Mauritius are by Indian companies trying to avoid taxes in India. Is this model sustainable in the long run or is it high time India reforms its market and does something to avoid double taxation?
NB: While India has signed double taxation avoidance treaties with a number of countries, its treaties with countries like Mauritius and Singapore are of special importance in view of the concessional provisions. In particular, the India-Mauritius treaty specifies that capital gains made on the sale of shares of Indian companies by investors resident in Mauritius would be taxed only in Mauritius and not in India. This has led to the establishment of conduit companies in Mauritius through which investors of third countries route their investments to India. By doing so, they avoid paying capital gains tax altogether and also enjoy low rates of dividend and income taxes in Mauritius. A part of FDI coming from Mauritius is also round-tripped investment by Indian investors taking capital out of the country, and reinvesting through Mauritius to take advantage of tax concessions of the treaty.
The question that has been challenging the basis of India’s treaty with Mauritius is whether India is giving away much more in tax exemptions than it is getting in FDI. This question has been debated threadbare at numerous platforms in the last many years. India simply can’t scrap such tax treaties altogether, as it will have a very drastic impact on investments coming into the country. Hence, India needs to take steps in a phased manner to prevent such tax avoidance as well as to eliminate round-tripping of investments.
In case of China also, although FDI is very large in gross terms, a significant part of them are round-tripped investments. In this direction, India has introduced provisions such as limitation of benefits clause (LOB) in a number of treaties, such as the ones with Singapore and UAE. As per the LOB clause, concessional benefits of tax treaty will be extended only to bona fide investors having a business purpose. The LOB clause limits treaty benefits to those who meet certain conditions, including those related to business, residency and investment commitments of the entity seeking benefit of the treaty. In addition, there are other reforms underway like general anti-avoidance rules (GAAR), which would be in place once the DTC is implemented.
“Investors don’t trust Mr. Modi as much as Mr. Modi trusts himself” - Mani Shankar Aiyar, Member, Rajya Sabha (Indian National Congress)
TDB: You have been very critical of the way the Modi government has been dealing with foreign direct investment (FDI). What do you think is the real perception of India, right now, among foreign investors?
Mani Shankar Aiyar (MSA): Well, the figures speak for themselves. Since the Modi government came to power, there has been lot of rhetoric and a lot of Rs.10 lakh suits, but where is the FDI? It seems as if India is not regarded as a favoured destination. The chairman of one of our nationalised banks has said the normal ratio between GDP growth rate and bank credit growth rate is 2.5. So, if the GDP growth is 7.5%, bank credit should be expanding at nearly 18%. The actual fact, however, is that bank credit is growing at just 12%. Hence, I don’t think the statistics of the government are being trusted by the investor community and I don’t think any of the moves that have been made by the government is going to boost business in India. There’s a lot of talk, but very little action.
TDB: You mean to say all these foreign trips that the Prime Minister is making hasn’t brought in any major investment into the country…
MSA: That’s right. Show me where the investment is and I will be happy to change my views. In any case, we need to understand that for a continental economy like that of ours, FDI will not have as much importance as in case of other countries. But since the government is committed to have a huge amount of foreign investment and one doesn’t see that investment, in fact we don’t even see domestic investment, what are we talking about?
TDB: The government has made some moves like bringing in the land acquisition ordinance, hasn’t it?
MSA: I think that’s a load of rubbish. Land acquisition has not been holding up investment. Investment has been held up because of number of other factors, of which land acquisition is a small part. And in any case, just in order to facilitate investment, whether it’s domestic or foreign, if you are going to dislodge Indians from their own homes, then it is not just wrong, but is criminal.
TDB: What about the complications in taxation? There’s still not 100% clarity on MAT, isn’t it?
MSA: That is why I say there is nothing that is clear. There is no substance to their (government’s) words. That’s why the investors community, whether in India or abroad, simply doesn’t trust Mr. Modi as much as Mr. Modi trusts himself.
TDB: Recently, some large institutional investors have said they are really disappointed with the Modi government’s first year in office. When you travel abroad, do you get the same view from even foreign direct investors?
MSA: Well, I don’t travel abroad to meet businessmen, so I can’t claim to speak on their behalf. But I am going by the evidence on the ground, which is that irrespective of whatever is being said by Mr. Modi, the fact is that investment is not taking place – neither within the country, nor from outside.
“Modi government seems to be disentangling regulatory hurdles to FDI” – Sean Laughlin, Executive Director, Global FDIA
TDB: Which countries have benefitted the most from FDI? Are there also instances of FDI ruining a domestic economy by creating monopolies or other such situations?
Sean Laughlin (SL): Most countries that have received FDI would regard it as beneficial. It is widely recommended by multilateral agencies as a means of boosting the economy of emerging markets. FDI does not create monopolies. Rather, the reverse is true as FDI provides competition to incumbent national champions and/or create new industries that were not present earlier. While the word ‘ruin’ is a little strong, there are cases of countries that have been so successful in attracting FDI that the local economy has become over-dependent on it. Wales is an example of this.
TDB: While investing in a foreign country, what are the main concerns of an investor? Please share with us instances, if any, of investors not being allowed to repatriate their investments.
SL: Concerns vary from country to country and from investor to investor. In some countries, patent or intellectual property protection may be the principal concern. In others, the health or safety of staff might be a concern. In some, risk of earthquakes, flooding or other forms of force majeure are concerns. Political instability, regulatory changes and lack of transparency are further sources of potential anxiety. There are numerous examples of socialist regimes that have expropriated the assets of foreign investors. One example is Argentina’s seizure of YPF from its Spanish owner Repsol.
TDB: How fairly is FDI generally treated around the world? Does it get the same treatment as domestic investment or are discriminations rampant?
SL: In some countries, foreign investors receive more favourable treatment than domestic ones. In others, the reverse is the case.
TDB: How big a factor is having a stable and predictable tax regime when it comes to attracting FDI? What’s your take on the repeated taxation related flip-flops that successive governments have done in India?
SL: All forms of regulatory stability are key to a successful FDI attraction programme. Tax is very important to all profit-making enterprises, so a competitive, stable and transparent tax regime is obviously a powerful element in a location’s basket of benefits on offer to foreign investors.
TDB: In the world of free floating currencies, isn’t depreciation of the currency of the country in which investments are made a big concern? Do you think FDI should also be hedged as is the case with portfolio investments?
SL: FDI is a long-term commitment to and partnership with a location. It is not comparable with speculative portfolio investment and currency fluctuations should be of minimal concern unless the corporate headquarters is dependent upon annual dividends from the subsidiary.
TDB: The new Indian government has started ‘Make in India’ campaign to boost domestic manufacturing by attracting FDI. What do you think the government should do to attract more foreign capital into the country?
SL: Foreign capital flows to markets with demand for products and/or services. The government of Narendra Modi seems to be moving swiftly to disentangle regulatory hurdles to FDI. However, whether there is demand for foreign goods and services is not necessarily something that the government can affect via legislation.
TDB: Have zero/ near-zero interest rate policies adopted by central banks in the developed world seen any surge in FDI in the developing world?
SL: We are not convinced that it is wise to assume too great a connection between the two.
TDB: How big a concern is the protection of IPRs when it comes to FDI? Are India’s poor IP track record and a slow judicial process also strong impediments in attracting FDI into the country?
SL: Intellectual Property protection is a considerable concern for certain sectors. Many companies operate a policy of retaining all R&D activity in the home market, regardless of the compelling case that might be made by a well-regulated lower cost location, with a good supply of appropriately qualified staff. But if a judicial process exists, no matter how slow, that is still better than no judicial process at all.
“26% FDI limit in insurance was just too low” – Ajit Banerjee, Chief Investment Officer, Bharti AXA General Insurance
TDB: What do you think are the main concerns of the government that are stopping it from fully opening up the insurance sector to foreign investment?
Ajit Banerjee (AB): Since insurance is linked to the common masses, the government, naturally, has to be very careful and sensitive while dealing with it. However, successive governments, over time, have been taking steps towards opening up the sector and one such move was the creation of Insurance Regulatory and Development Authority of India (IRDA), which is an autonomous apex statutory body, created to regulate and develop the insurance industry in the country. It was a major step, since before opening up the sector, the insurance industry needs to be in line with the requirements of the international market. I am sure, once India reaches that level, the market will gradually open up. Once the government and the market reaches a comfort level and realise that foreign insurance companies are not fly by night operators, but serious players looking at a long-term market, the cap on FDI will gradually increase.
TDB: What could be the motivation for a major multinational insurance company to enter the Indian market unless it has management control? Isn’t it just returns that they are chasing as minority shareholders?
AB: Today, India is one of the most promising markets for insurance. With most developed markets quite saturated, India provides an opportunity to multinational insurance companies to expand. As India grows as an economy, the awareness about insurance will also grow. We need to keep one fact in mind that insurance is an obligatory instrument. Hence, foreign companies are quite sure that in the next few years, insurance penetration in India will only grow.
TDB: You said since insurance is a sector in which the common man is involved, the government is very cautious about opening it up for foreign investors. But if you look at the banking sector, foreign portfolio investment is allowed well above 50% in several Indian banks. Isn’t this an anomaly?
AB: Although both banks and insurance are part of the financial sector, their nature of business is completely different. Insurance companies operate with an underlying risk assumption. If a bank grows in terms of its topline, there’s a fair chance that it would be growing even in terms of its bottom line. But this doesn’t apply to an insurance company. Topline growth in insurance needn’t translate into bottom line growth. Since the dynamics of the two businesses are not the same, you cannot apply the same methodology to them.
TDB: Would you say the financial crisis and what happened with AIG made the Indian government even more cautious about foreign investment in insurance?
AB: I don’t think the AIG crisis has any way affected FDI related policies in India. If that would have been the case, we wouldn’t have seen the government increasing the FDI limit in insurance to 49%.
TDB: After FDI limit in insurance was increased to 49%, what kind of interest have you seen among potential investors? Do you think Indian companies have been able to fully utilise this?
AB: In general, since the potential for growth in India is pretty good, the Indian market interests a lot of investors. The earlier 26% limit was just too low. However, increasing FDI in a company is entirely upon individual boards and shareholders.
TDB: Do you think the decision to increase the FDI limit in insurance was based on proper analysis and/ or repatriation data?
AB: I am not sure to what extent the government maintains data on FDI repatriation, but certainly by analysing market information, which is available publicly and is much more dynamic in nature based on debt-equity, one can find who are the investors coming in and who are the investors taking money out of India.
TDB: What’s your general take on the environment for FDI in the country?
AB: While FDI is more about investment, portfolio investment is more about trading and short-term gains. Hence, the government has been consistently saying that it welcomes FDI, since it is supposed to more permanent in nature, as compared to portfolio investment.
“Democratic structures and processes have no space once FDI based projects are pushed” - Medha Patkar, Social Activist and National Convener, National Alliance of People’s Movements
TDB: Are you against FDI per se, or against the way it is implemented in India?
Medha Patkar (MP): We, the National Alliance of People’s Movements, are against most of the FDI in India. With FDI, no doubt the country is getting investment from abroad, from different sectors, in different manners, by corporates, as well as bilateral agencies, but our question is regarding what all is involved in the process. For example, in the Delhi-Mumbai Industrial Corridor (DMIC) project, Japanese Bank for International Cooperation (JBIC) is involved, but all it is trying to do is bring in investments from specific corporations. It’s not like they are here for our development, but for their gains. They use labour and natural resources here, but there is very little, almost nil, control of the operations with the state. That’s how these things are, invariably, planned.
Let’s take the case of the proposed Vizhinjam International Seaport in Kerala. It is financially unviable, and hence, none, other than the Adani Group, is bidding for it. So, even financially non-viable projects are being pushed ahead and approved and accepted in the name of increasing investment. If this is the case with powerful Indian companies, things can only be worse when it comes to foreign companies.
TDB: Irrespective of which political party is in power, it is argued that FDI is required for growth and employment generation. Do you think enough analysis has been done on what the country is gaining from FDI or what its socio-economic impact is?
MP: Now-a-days, anything and everything is development. When an economic activity takes place, none looks at the economic or the environ-economic aspect of it. This is very unfortunate. In fact, the politicisation of development has broken all connections with the proper concept of development. Instead, what we have today is just a superfluous understanding of development.
Growth and development can never be sustainable and equitable when FDI is involved, because under it, the pressures are different and the agreements are influenced by these pressures. Then there are indirect benefits for the decisionmakers and politicians. With public-private partnerships, even the government is now joining hands with corporates and foreign investors, and there’s absolutely no care or respect for laws of the land. Even when World Bank provides money for a project, and even if the investment amount is very little, it exerts a lot of influence, and laws are compromised to push the projects. The Narmada Dam project is a great example of this. Although the World Bank had put in a very small percentage of the total investment for the project, it pushed it through without environmental clearances. Democratic structures and processes have absolutely no space once FDI projects are pushed.
TDB: What’s your take on the new land acquisition ordinance to amend the Land Acquisition Act, 2013?
MP: We are fighting the ordinance because it is against the interests of the people. Overlooking all dialogues and debate, the government has brought in the ordinance, without following consultative processes either with us or with other parliamentarians. We object this. We are going to oppose even the second ordinance through a mass rally in New Delhi. It is very clear that the amendment that has been proposed by the government after the first ordinance is just an eye wash. The government is saying everyone who loses his/ her land will be given a job. But this clause was also there in the 2013 Act, but it’s never been implemented.
The government is pushing this bill, since huge tracts of land need to be acquired for projects like the DMIC. The government is pushing us back to the British era, but even the British never said that land can be forcefully acquired even for private projects!
Copyright @2024 The Dollar Business. All rights reserved.
