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Export of capital by India Inc PUBLIC REPORTER
Is it all justifiable?
| December 16 2011
Author Profile
Am a retired banker, now in Kolkata, engaged in management education and writing as banking and governance commentator.
Three items in the November 28 edition of the Times of India caught my attention. First, Prof Nirmalya Kumar of London Business School argues that the global service delivery model developed in India allows even the most creative jobs to be moved to India provided the interfaces can be specified. He also was quoted to have said that India Inc need not build global brand as the market is really here and they should rather invest in product, ie, R&D. All this clearly means, inter alia, that there is tremendous scope for investment inward in India and not outward.
Second, Aditya Puri of HDFC Bank was quoted as saying, “I don’t believe in this policy paralysis business in the sense you can’t have 7.5% growth with policy paralysis. It is being overdone.” This means it is not really difficult to do business in India.
Third, India Inc bets big on investing abroad – says a caption. Export of capital worth Rs. 3 lakh crore occurred in the last 18 months. In last six months, it was $19 billion. Between August and September 2011, there has been a 51% increase. This is against a declining FDI inflow of only about $393 million this year so far against $29 billion in the previous year.
It would be interesting to note in this connection that in the 2010-11 fiscal, investment of Indian companies in wholesale and retail trade overseas went up 78% as compared to the previous year – up from $1,052 million in 2009-10 to $1,870 million in 2010-11. In agriculture too, Indian investment overseas increased from $940 million in 2009-10 to $1,200 million in 2010-11.
Further, in the context of the recent debate on FDI in retail, it must be remembered that India is currently the world’s largest milk producer, second-largest fruit and vegetable producer and third-largest grain producer. However, only some 5% of its produce is processed and up to 40% of its fruits and vegetables perish through spoilage, because of poor cold storage facilities and inefficient transport. The question therefore naturally arises as to why doesn’t India Inc. think instead of investing more in here in retail and agriculture?
The other question is whether all this export of capital detailed above is in national interest? When there is a crying need for investment in India as aforesaid and falling FDI inflow, should we allow such unfettered outflow of capital? Because all this investment creates income and employment abroad, depriving the home country. It is however possible that the business abroad would have considerable synergies with India like in terms of technological upgradation and taking advantage of favorable conditions in India with regard to manufacturing and out sourcing especially of raw materials or for resource exploitation for Indian operations.
But, take recent cases like Fortis’ in Singapore, GAIL’s in the US and Canada, GVK Power’s in Singapore and ETHL Communication Holdings’ and RHC Holdings’ in Mauritius. Or about $5 billion investment by about 10 Indian companies in Kizad, an Abu Dhabi govt owned industrial zone. Even Financial technologies, which runs the MCX commodity exchange, wants to run exchanges in Bahrain, Singapore and Africa.
One needs to know how many of the proposals have built in such positive linkages. Further, the scope and possibility of any outsourcing to host countries would over time get more and more limited. Thus time has come to review what benefit the home country derives from pursuing such overseas operation and this is more relevant in the context of the need for FDI inward and the debate on outsourcing.
Very interesting and lucid article with relevant facts and figures. It is disturbing to see that rate of private corporate sector investment has been rather tardy in India over the last few years. This is only reducing the potential of GDP growth in the coming years.
I have a doubt that the Indian private corporate sector is not aware of the tremendously large and attractive investment opportunities in India. Then why are they not investing in India? I do not think that the large private sector investment by Indian companies overseas is creating shortage of resources for investing in India. Many Indian corporates are holding cash rather than investing in India or abroad. I also do not think that investing within the country is more nationalistic than investing overseas. If we leave out the emotional considerations out, the simple fact that needs to be explained that why despite having huge resources to invest within the country even after investing abroad and despite India's immense potential why is the Indian private sector and even the resource rich part of the public sector not investing within the country at a faster pace? We must not forget that in India as in everywhere else commercial investments in industry, agriculture and services take place at a rapid pace if the conditions allow the investors to perceive that the investments will not get into hurdles in the process of obtaining the various approvals from the State, the project implementation will not get stuck in neighborhood resistance and public outcry, that the economy will not get jammed by macro-economic imbalances, the Govt. approvals will not be negated by Courts or Government will not reverse its decisions on approvals, and there will be some measure of political stability to ensure that the bureaucracy continues to function effectively without getting busy with getting bogged down by their political bosses business in dealing with political opposition and civil society agitations. The fact is on all of the above counts, it is surprising that the Indian Inc is still investing quite a lot, but they would still want the clouds to get cleared before they accelerate the pace on investments and in the meanwhile concentrate on getting their on-going investment projects get the Government clearances.
There is no point in blaming India Inc for not investing within India at a rapid pace when the Political leaders delay passing long-pending legislation, the Government take economic policy announcements and then go back on implementing them. If the political parties and the government can afford to delay everything that they are supposed to deliver and when the monetary authorities goes on tightening and raising interest rates continuously and inflation does not listen to RBI's orders and come down, why should we expect private industrial investors to be in a hurry to make investments within the country. Private investors are not expected to be irrational even while the political parties hurt national interest of peace, delivery of laws and governance.
The article is written with a very narrow scope without taking into consideration the bigger viewpoints.
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