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July 03, 2011




Page: 4/39

Home > 2011 Issues > July 03, 2011

Editorial
Congress busy killing the India story

THE flight of capital from India is now official. The latest Reserve Bank of India report says that the outward flow of FDI in May 2011 was up 59 per cent at $3.7 billion. Outward flow in May 2010 was less than half of this at $1.39 billion.

Blame it on policy paralysis, the unconcealed civil war in the economic ministries, absence of governance or a deliberate drift to jeopardise India’s growth, the UPA has practically succeeded in killing the India story. FDI outflow is the result of Indian firms investing abroad. In the best of times there is nothing wrong about it, in a globalised world. The problem is when it starts pinching the domestic economy, affects growth, investment and employment generation and disincentivise FDI inflow. This also is a reflection of the corporate perception that there are better, more profitable destinations for investment. In a way, it is an expression of no-confidence by the corporate, on the present regime. Has Manmohan Singh done anything to the arrest of this trend? No. In fact, the UPA government is wilfully encouraging this flight of Indian capital. This at a time, when FDI inflows from the rest are drying up. Other Asian countries have emerged stronger contenders for foreign investment.

Flight of capital from India has been on the rise for the last three years. In these columns we had warned about this trend on a couple of occasions earlier. In 2007-08 the outward Indian investment stood at $20.94 billions. This was $17.16 billion in 2008-09, and it remained at $17.98 in 2009-10. In 2010-11 it jumped to $43.92 billion. The liberalisation of the overseas investment policy by the UPA in 2005 was one of the main reasons for this trend. It was explained as an initiative to strengthen economic linkages with other countries. The RBI report says that Tata Steel, Reliance and Gammon are some of the major overseas investors.

Reports say that almost 65 per cent of Tata’s earnings come from abroad. The group is giving jobs to some 45,000 British citizens. Almost the entire investment plans of the Reliance group for the next five years are all overseas. The RBI report reveals that as many as 418 firms have made investments overseas in May 2011. Outward FDI comprises investments in equity, loans and guarantees issued by Indian companies to their joint ventures or wholly owned subsidiaries and purchase of oilfields, agricultural land, real estate and other properties. A major concern in the flight of Indian capital is that it affects investments, job creation, growth and development in India. It also neutralises whatever FDI the country attracts – one of the major rationale behind liberalisation. The RBI would however claim that the outflow is part of the government’s initiative to growth in India’s export, and transfer of skills and sharing of R&D.

The fact remains that, foreign investment to India is down by over 25 per cent during this period. Inflation has reached double digits. The interest rates have become so high that the EMI on housing, vehicle and other consumer durables have increased 100 per cent after the UPA came to power. In the last 27 months interest rates have risen 10 times. And the growth estimates are being lowered. Is there a deliberate shenanigan to guillotine the India growing story?

Look at the stock market, the most sensitive index of economic bullishness. The post-liberalisation India used to boast of its buoyant stock market, which attracted an ever increasing number of retail investors, with the government offering attractive tax incentives. The other day an Economic Times report said, by June 10, 2011, the Sensex had slumped about 11 per cent, in the last six months giving India a place along with Egypt and Tunisia among the world’s 10 worst performing equity markets. The FII investments in the Indian equities which was $29 billion last year was the lowest at $52 million in 2011, — not only is it a fraction of the money that Indonesia ($1586.4 m) and Taiwanese ($1830.8m) markets received, even Pakistan ($72.8m) has done better than India. Indian investment market today is one of the most expensive in the world. And the never ending tales of graft have put a permanent question mark on the government’s capacity to pursue reforms. As a result even Indian corporates are feeling unsure of dealing with the UPA. They find it safer and cheaper to invest abroad. This, however, is only part of the story.

The UPA, it seems is bent on instigating a capital flight from India. It has created a super cabinet of frustrated, retired babus, over-ground Maoists and Left fellow travellers as Sonia’s advisory club, which obstructs all economic reforms. This Sonia club has devised a number of schemes to perpetuate poverty in the country and create a captive vote bank for the dynasty. So, major investment proposals are languishing for want of environment clearance. Power generation is stagnant because of coal linkage bottle-necks. The promised 20-km a day road-built is only on paper. Infrastructure building is facing stumbling blocks because of the cussed UPA agenda.

The funny aspect is that the regime obsessed with the slogan of all sorts of rights—right to education, right to food, right to information –has stopped doing anything right for the country.




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