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December 26, 2010

Page: 4/42

Home > 2010 Issues > December 26, 2010


Worry About Indian Economy
Flight of Indian Capital is a matter of serious concern

INDIA today is witnessing a massive flight of capital. Indian corporates are finding it more attractive to invest abroad and make maximum profit than investing in the country and be part of the great India growth story. The Tatas claim that 60 per cent of their turnover is now coming from overseas. They have big investment plans abroad. Mukesh Ambani, according to a report has all his investment plans amounting to $12 billion in the next ten years for America. All the big industries, Aditya Birla, Anand Mahindra, Essar, Bharti have all declared their big investment plans overseas.

Not a day passes without reports of big deals in acquiring agricultural land, mine fields, oil and gas exploration blocs, even villas and islands by Indian private industries, PSUs and dubious politicians in little known terrains in Africa and Americas.

We are not discussing here the thousands of crores - one estimate projects it at ` 280 lakh crore - stashed away in tax havens by politicians, businessmen and bureaucrats. The Government of India is busy signing away billions of dollars in a bid to help the tattering western economies, as if there is no tomorrow. In the last one month, Manmohan Singh government entered into a $10 billion dollar deal with the US, $20 billion mirage upgradation and nuclear power equipment deal with France, another $10 billion deal on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline through Afghanistan and Pakistan. Reports say that a mega $20 billion defence deal with the Russians is underway. Is India so flush with funds that it can shop around the world? Again some of the mega deals in civil aviation, shipping and transport have been finalised during the UPA-II term. The balance of trade with China is highly unfavourable to India despite the new trade treaty struck last week.

Two revealing interviews with captains of Industry - Ratan Tata and HDFC chairman Deepak Parekh - in The Indian Express in the past two weeks underline the growing unease in the Indian Corporate thinking. Parekh is reported as saying, "the big boys (of Indian industry) are looking outside India because it is easier to do business there. It’s a straightforward business, it’s no gray matter. You may pay a higher price to acquire companies, but in a year or two you make up for that". These big boys also contribute billions of dollars as donation to foreign universities in the US and UK where they studied; as goodwill gesture-or are they a PR exercise to create friendly investment climate-while Indian universities starve for funds. We have not heard of, but for very few exceptions, these big boys donating in any kind of charity in India. India, they take for granted and behave as if they have a birth right to loot and scoot.

The question is, is India rich enough to afford all this luxury? This is the country where some hundred millionaires hold assets worth over 25 per cent of the country’s GDP. These millionaires find the West more hospitable. Their children are more at home in foreign universities. The industry heads investing abroad will find most of these NRI youngsters employed in their firms, thus preserving the umbilical cord with Mother India. But this is also the land where an estimated 700 million people live in poverty. And majority of them eke out a living with less than ` 20 a day. Can this India of such inequality and exploitation allow this flight of capital?

The logic of liberalisation was to attract investment into the country for India’s infrastructure development, for creating jobs in India and removing poverty. Taking advantage of liberalisation Indian industrialists fattened their purses even as the rich-poor gap widened. They got heavy subsidies from tax payers’ money, got large swathes of lands, mines and even rivers and mountains transferred in their name-all in the guise of growth, investment and job creation. At the time of recession two years ago, these big boys were in the forefront asking for huge bailouts from the tax payers’ money. They have all made their mega millions in India. But now they behave as if creating jobs and economic recovery in America and Europe are their primary calling.

A lot of the investment these industries are taking overseas is part funded by our corrupt politicians who find it safer to invest abroad, where their children study and settle till it is time for them to return to India to reclaim their family political fiefdom.

Manmohan Singh who is credited with opening up the Indian economy is a silent, helpless spectator, if not a facilitator to this massive flight of capital from the country. He also has the dubious distinction of presiding over the most corrupt regime India has ever seen. The flourishing crony capitalism-about which we have often referred in our ‘A Matter of Economics’ column - is the biggest singular contribution of UPA-I and UPA-II.

The tragedy is this flight in investment is happening at a time when investments from the West to India have almost dried up. And the aspirations the India growth story and globalisation have created in the Indian psyche are real. Here is a situation where very few in the country have all the money and everything to splurge and a very large majority has almost nothing, to make the two ends meet. With education, new opportunities through reservations and vote bank politics in the next decade many more millions of Indians will start demanding better life. There will be a phenomenal burst in demand with the supply side remaining practically constant. This growing middle class population will add to the pressure on the already limited supply of food, clothing, housing, health and education. Can a stagnant economy, with its rich moving away their assets from the country meet their demands? The UPA seems to believe that it will not be there to confront this question.

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