Intro: If the weaknesses and threats perceived by FDIs in investing in India are not adequately understood, analysed and addressed, the Make in India dream may not bear fruition.
The NDA Government led by Narendra Modi has announced a ‘Make-in-India’ policy to boost the manufacturing sector lying stagnant or having a stunted growth for more than four years now. The high pitched pronouncement seeking foreign investment in various sectors of the Indian economy has been spelt out in a fairly detailed manner in the central government web portal www.makeinindia.gov.in.
The portal provides the relevant quantitative information on all sectors of the economy with a glaring focus on opportunities and strengths associated with Indian industry and economy. But, according to the principles of modern management, the SWOT (strengths, weaknesses, opportunities, threats) analysis that needs to be done before launching a business venture also includes an analytical judgement of weaknesses and threats associated with the venture. If Foreign Direct Investment (FDI) has to be a win-win proposition for India and foreign business houses, they definitely need to look at weaknesses and threats in addition to strengths and opportunities which are highlighted in the government portal.
Whether it is China investing financial capital in Indian Railways infrastructure or it is Japan investing in the development of India’s modern industrial infrastructure and the hundred smart cities, the investment may remain a virtual non-starter unless it has a clear, viable, profitable and mutually beneficial business model. And no business model can be prepared without taking account of positives and negatives impinging on the proposed investment. In fact, India as the recipient country for FDI would be doing itself disfavour if the weaknesses and threats that could be perceived by FDIs in investing in India are not adequately understood, analysed and addressed.
We have to learn from our past mistakes. The Enron fiasco in power generation dating back to 1996 and the Vodafone episode of 2008 under UPA-2 tenure are cases in point. While the Dabhol power project turned out to be a bitter experience for India and for Enron- the former US energy giant, the latter created fears in the minds of foreign MNCs about unfair financial penalties getting slapped in India. In the Vodafone case, an income tax of nearly Rs. 3200 crores was imposed with retrospective effect on the Company for a share sale transaction done in 2008 and subsequently this penalty was quashed by none other than Mumbai High court in October 2014 in response to petition filed by the Company against Income Tax Department of Government of India.
These two episodes only underline the lack of mutual trust, transparency and fairness that has marked implementation of important FDI projects in the past.
The land acquisition process in India continues to be tedious and complex. Land acquisition laws and procedures cry to be simplified. The legal system needs lot of improvement. Disposal of cases including frivolous PILs (Public Interest Litigations) continues to be lengthy and time consuming. The sluggishness of legal machinery, perhaps, remains the biggest cause of apprehension and hesitation for potential investors—foreign and also domestic, in Indian industry. Whatever the Modi government has done in these six months or intends or plans to do in the short term future for addressing the above issues, should be clearly and comprehensively spelt out.
We need to provide complete comfort level to potential investors over matters which could be perceived by them as risky. Due diligence , which covers an in-depth analysis of various types of risk—technical, economic, commercial and even political, is an essential preliminary exercise in FDI. We need to be open, transparent and sincere in addressing these risk issues to the extent practicable if we want FDI to flow in fast and big. Otherwise, our ‘Make-in India’ policy pitch may not be successful in attracting foreign direct investment.
We need to demonstrate that online single window clearance of the relevant proposals including their environmental angles in the concerned government offices is in place and actually working. The Modi government need to show that they are working towards necessary changes in the legal systems and institutions so that they do not pose unnecessary wrangles in implementation of FDI funded projects; and that they will ensure commitment to transparency, accountability and fairplay.
Atul Sehgal (The writer is a senior columnist)