Guest Commentary

 

India is in danger of losing its reputation as a preferred business destination after a recent flight of foreign investments, even as it struggles to recover from its worst slowdown in more than a decade.

Asia’s third-largest economy desperately needs foreign capital to revive growth, but it has been jolted by the pullout of two of its biggest investors in recent weeks.

Steel giants ArcelorMittal and Posco recently scrapped projects totalling more than $13 billion (R127bn), citing inordinate delays in securing land or mining rights due to local protests.

Global investment flows have fallen sharply over the past year, due to macroeconomic fragility and the policy uncertainty faced by investors.

The biggest emerging economies – Brazil, Russia, India and China – have been most affected but India appears hardest hit, as investors find it a tough place to do business.

Once bullish about India, investors complain of red tape, delays in permits and regulatory uncertainty, which they say render their projects unviable.

National Planning Commission member Arun Maira conceded that an unfriendly business environment, rising interest rates and input costs, along with a weakening rupee, were hurting investment.

“Investors look at the recovery previous investments make. When they hear about projects stuck or investments not paying off, it deters them from putting their money in. India loses out on being an attractive option,” he said.

Foreign direct investment slumped by 36 percent to $22.4bn in 2012/13, against $35bn in the previous year, despite the government easing curbs on a dozen key sectors including retail, telecoms, insurance and aviation.

Other high-profile pullouts were seen in the electricity, telecoms and financial sectors, including that of Britain’s 3i, the largest India-dedicated infrastructure fund.

Morgan Stanley and the Royal Bank of Scotland have also drastically scaled down their operations. Surveys show that most companies have no major investments lined up this year, while others are delaying their plans until after next year’s elections.

In fact, more capital is being invested by Indian companies abroad than the other way around. Reserve Bank of India data show that firms committed to fund overseas expansion of about $26bn in the past year.

Building on economic reforms launched in the early 1990s and driven by its flagship service sector, information technology and pharmaceutical firms, India was once poised to give China’s economic juggernaut formidable competition. It logged rapid growth peaking at nearly double digits until 2008 but growth has since slumped, falling to a decade low of 5 percent in the past financial year.

But unlike the highly centralised decision making in China, India pays heed to dissent and its minorities, which can often delay projects. Protests by communities fighting for their land rights and livelihoods have brought several large projects under scrutiny.

For example, the Dongria Kondh tribe in Orissa is to decide whether UK mining giant Vedanta should be allowed to build a bauxite mine in the Niyamgari Hills, which it deems sacred.

India’s opening of its $500bn retail sector to foreign supermarkets also came after strident opposition, including nationwide strikes.

 Such development-versus-environment debates are playing out across India, where the rights of land-owning farmers, indigenous people and fishermen are weighed against the setting up of industrial projects that bring jobs and money into the country.  – Sapa-dpa