Serious economies cannot behave irresponsibly. That is the lesson to be drawn from the international fallout of our domestic telecom scandal. Within a week of the Supreme Court cancelling 122 telecom licences because of how they were issued, Bahrain Telecommunications Company has pulled out its investment in S Tel, and Etisalat of the UAE has written off investment of $827 million in Etisalat DB, in which it holds a 45 per cent stake. A Norwegian minister has come calling, to protect the interests of Telenor (which is majority-owned by the Norwegian government), and you can rest assured that the Russians are not going to meekly accept the loss of Sistema’s majority stake in Sistema Shyam TeleServices, especially when Sistema owner Vladimir Yevtushenkov is closely linked to Prime Minister Vladimir Putin. So how much damage has been done internationally to the country’s standing and goodwill, because Mr Raja was allowed to get away with his antics while the prime minister and finance minister fiddled?
Our capricious politicians are only dimly aware of the international fall-out of their domestic dance. All too often, the operating assumption within the country is that the government can do pretty much what it wants since most serious businessmen don’t want to be in court against it. That is not how it works around the world. So Devas has dragged Antrix to arbitration in Paris, after the government woke up one day and cancelled their contract. Cairn has accepted the government’s unilateral rewriting of its contract with the Oil and Natural Gas Corporation, but only because it needed the government’s approval for a change in shareholding control, and you can be sure that others in the energy space have been watching. Indeed, who is to tell how much damage was caused by the Enron-Dabhol fiasco in the 1990s, in terms of lost investment? While the collapse of Enron saved India some blushes, subsequent overseas investment in Indian power generation has been barely $5 billion (about the cost of one ultra-mega power project).
Other countries behave arbitrarily too. China gets away with it because it has become so important to international companies that they dare not complain. Corporations like General Electric (which negotiated to get its money out of Dabhol) are apparently yet to make a profit in China, despite massive investment over two decades, but you will not hear people complaining about it the way global businessmen frequently complain about the Indian business environment. Russia too has often behaved as though it is not bound by rules, but it has raw material (oil, gas, gold, timber, etc) that the rest of the world wants. Still, it is hard to argue that Russia has not suffered as an investment destination. India is placed differently from both China and Russia. It has attractions as a fast-growing market, but a crucial difference is that (unlike in China and Russia) its soft power attributes – independent courts, a free press, an open democracy, etc – are important factors.
As it is, the country makes life hard for businesses, or it would not figure embarrassingly low in the World Bank’s list of countries ranked on the ease of doing business (132nd in a list of 183 countries; six years ago it was 116th out of 155 countries). Why add to the headaches with poor contract-negotiation, then second thoughts and unilateral action? This is not to argue that the country should not get out of bad deals; rather, the issue is of avoiding capricious conduct in an economy that hopes to be the fourth largest in the world by the end of the decade. If you want to get there, you have to start behaving like a serious economy, not invite comparisons with banana republics.