Vijay Kumar Gaba: FDI

Showing posts with label FDI. Show all posts

Tuesday, July 18, 2023

Struggle to find a balance

There is little doubt in anyone’s mind that having the largest youth population (…and still growing) in the world and much improved infrastructure India is a place of immense interest to (i) the global businesses who are looking for an attractive market for their products; and (ii) enterprises who are looking to diversify their production/services base to a place with abundant and cheap skilled workforce, natural resources, favorable policy framework, and decent infrastructure. The foreign governments which run on the support of these businesses (or the governments who run these businesses themselves) are obviously keen to widen and deepen their relationship with the Indian businesses and government.

Fast growing economic and geo-political influence of China in global affairs has also enhanced India’s importance as a key balancing factor in the global strategy of developed countries and strategic alliance partners.

With this growing interest of the global community, it is natural that India has become subject of greater scrutiny by the global media, political observers, regulators, civil society watchdogs, various interest groups & lobbies, etc.

This scrutiny is usually not limited to regulatory compliances and corporate governance issues. It actually goes much beyond that. For example—

· The businesses who are investing (or planning to invest) billions of dollars in India facilities, would want to ensure that policy making becomes (and remains) conducive to their interest. It is therefore common for them to make attempts to influence the policy making function through various means, all of which may not be ethical or fall within the contours of established diplomatic norms.

· The foreign governments relying on the capabilities of the Indian administration and businessmen for protecting and furthering their strategic and economic interests would obviously dislike an independent policy thinking in India. Forceful attempts would be consistently made to engage India in global protocols, treaties and alliances so that the policy making in India remains aligned to their interest.

· The technology innovators would try hard to ensure that their IPRs are protected, Indian technology firms do not engage in developing competing designs/products etc.; Indian manufacturers and service providers engage in low value add jobs only while the innovators keep the bulk of the margins.

· The lobbies working on behalf of the competitors and adversaries would rake social issues like intolerance, inequalities, human and minority rights’ violation, lack of sustainability in large infrastructure projects, etc. All of these concerns may not be mala fide, but definitely most of these are sponsored.

How would India deal with these foreign interest groups shall ultimately define the quality and sustainability of our socio-economic progress. If the government and businesses could maintain a balance between India’s developmental and growth needs and concerns of the global partners, we could witness some brilliant decades for India and Indians. However, if we fail in achieving a balance and give into the pressures of various interest groups; or refuse to engage with them sticking to our own position, we would definitely risk missing this great opportunity.

As of this morning, the struggle to find the balance remains intense…more on this tomorrow

Friday, June 5, 2020

Focus on strengths

Unpredictability has been one of the key characteristics of the incumbent Indian government ever since it assumed office in May 2014. The government, especially the political leadership, has taken numerous decisions that have surprised most of the citizens and global observers.

Overnight decision to replace all large currency notes in circulation (demonetization); surgical strikes in PoK; air strikes in Pakistan territories; abrogation of article 370 of the constitution and bifurcation of the state of Jammu & Kashmir to carve out Ladakh as a separate union territory; criminalization of the practice of triple talaq; amendment in the citizenship law; abolition of planning commission; restructuring of corporate tax rates; and most recently the decision to impose a total lockdown in the country to control the spread of COVID-19 virus etc are some of the examples of unpredictable decision making.

The tendency to surprise the stakeholders has not remained limited to the powerful political establishment alone. Bureaucracy has also borrowed abundantly from their political master. It has been issuing administrative orders, which have been often described by the stakeholders as "draconian" and "incongruent" the stated policy objectives of the government.

Under these circumstances, attracting major new foreign investment could be a challenging task. Many global businesses are certainly lured by the size and potential of Indian markets, availability of skilled worker at comparatively lower cost; improving physical infrastructure and abundance of natural resources. However, unpredictability of policy; corruption, law & order issues; judicial overreach (in recent years); and dogmatic bureaucracy have so far kept them from making larger commitments.

In past few years, thus, the FDI in India is mostly focused on stressed infra assets (roads, airports, renewable energy, etc); digital platforms; services like telecom and retail, and assembly plants for electronics and furniture etc. Investment in IT, automobile & pharma sector that started in 1990s has mostly saturated and new investment now is just a trickle.

Over the years, India has been turned into back office and assembly line of the global corporations. Many of these businesses shall lose their relevance in the emerging world driven by artificial intelligence, dematerialized transactions, and xenophobic nationalism.

The rising unpredictability of policy is making even the current flow of investment, which is much below the potential of Indian economy, uncertain. Many global banks having their mission critical back offices in India are wondering whether they should work on alternate plans, given the onerous lockdown conditions. God forbid, if the second wave of COVID-19 hits, as many experts are emphasizing, and another round lockdown becomes necessary, these contemplations may certainly be brought to drawing boards.

Unfortunately, we have so far failed in attracting any meaningful foreign investment in social infrastructure like education, healthcare, skill development, water, sanitation, traditional food, promotion and development of local culture & languages, etc. - the things that will make India a self reliant and developed economy. Investments in these areas will be India specific, profitable, and sustainable for long duration. The employment opportunities in these areas will be far greater, rewarding and sustainable as the local people will be engaging in these activities from the position of their strengths. A cursory stroll through YouTube will show you thousands of young and middle aged housewives, from small towns and metropolis alike, sharing their culinary skills with the people. Many of these women are celebrities in their own right followed by thousands of enthusiastic cooks. There are thousands of household women entrepreneurs who supply homemade lunch Tiffin to office goers and hostel residents.

Investing in these experts of local cuisines could be far more rewarding & sustainable than investing in a food delivery platforms and junk food outlets.

Wednesday, December 11, 2019

Industry and Services sector transformation agenda implemnetation still at take off stage

In the three year agenda released in 2017, NITI Aayog noted that "unemployment is the lesser of India’s problems. The more serious problem, instead, is severe underemployment. A job that one worker can perform is often performed by two or more workers. In effect, those in the workforce are employed, but they are overwhelmingly stuck in low-productivity, low-wage jobs...Therefore, what is needed is the creation of high-productivity, high-wage jobs."

The action agenda therefore emphasized on increased emergence of larger, organized-sector firms that can create high paying jobs. To meet this end, promoting exports was considered a better option rather than trying to substitute imports by producing in India.

The agenda paper accordingly highlighted that "A focus on the domestic market through an import-substitution strategy, however attractive it may seem, would give rise to a group of relatively small firms behind a high wall of protection. They will not only fail to exploit scale economies but also miss out on productivity gains that come from competing against the best in the world. The electronics industry offers a case in point. Our domestic market in electronics as of 2015 is only USD 65 billion. In contrast, the global market is USD 2 trillion. Our policy of import substitution under high protection has given rise to a group of small firms none of which is competitive in the world markets. In contrast, a focus on the global market can potentially result in output worth hundreds of billions of dollars and hence a large number of well-paid jobs."

NITI Aayog underlined the demographic advantage and wage competitiveness of India vis a vis China, while spotting an attractive opportunity in shift of businesses from China. It noted "Today, with Chinese wages rising wages due to an ageing workforce, many large-scale firms in labour-intensive sectors currently manufacturing in that country are looking for lower-wage locations. With its large workforce and competitive wages, India would be a natural home for these firms. Therefore, the time for adopting a manufactures- and exports-based strategy could not be more opportune. Keeping this context in view, the Action Agenda offers detailed proposals for the implementation of an exports-based strategy. Among other things, it recommends the creation of a handful of Coastal Employment Zones, which may attract multinational firms in labour-intensive sectors from China to India. The presence of these firms will give rise to an ecosystem in which local small and medium firms will also be induced to become highly productive thereby multiplying the number of well-paid jobs."

The Action Agenda in particular offered "specific proposals for jumpstarting some of the key manufacturing and services sectors, including apparel, electronics, gems and jewellery, financial services, tourism and cultural industries and real estate."

After two and half years, the implementation of the agenda is found lacking on almost all fronts.

(a) Industrial production growth has slipped.

(b) Work force participation rate has slipped to multi decade low. Unemployment rate is highest since 2011. Labor productivity growth is at lowest level in a decade.

(d) No significant progress is seen on coastal zones, increase in port capacities. The work on dedicated freight corridor has progressed but still running much behind the revised schedule.

(e) Some impressive projects have been announced by some major global manufacturers. However, on ground little progress is visible. In 2018 the import of telecommunication equipments was highest in five years. FDI has been lower in 2018 and 2019 as compared to 2017.