A V Rajwade: Attractions of things foreign

WORLD MONEY

What lures India Inc to invest more abroad than in the country?

At one time, the average Indian had a great attraction for things foreign: no wonder, of course, given the extremely rigid exchange controls and travel and import restrictions then in force. Lately, however, Indians seem to be getting attracted to foreign assets and countries in a different way. The phenomenon has also attracted the attention of the prime minister who, while presiding over a steel plant ceremony in West Bengal recently, asked why Indian steel companies find it easier to expand abroad.

While the question was perhaps raised in the context of Lakshmi Mittal's takeover of Arcelor and Tata Steel's bid for Corus, contrasted with the problems they are facing in India in starting greenfield projects, the issue obviously has wider repercussions. Why do Indians prefer to invest abroad braving even the kind of obviously racial and hostile reactions Mittal faced? (Incidentally, Mittal was Financial Times' "Man of the year" and also Time's international newsmaker of the year.) One reason surely is their fear of Indian women, particularly, the formidable opponents of any change like Mamata Banerjee and Medha Patkar. Poor Buddhadev Bhattacharjee seems to be at his wits' end about how to meet his promise to the Tatas, which would lead to the establishment of a car factory and the creation of thousands of badly needed jobs in West Bengal. (Tamil Nadu does not know how lucky the state is that neither Banerjee nor Patkar know Tamil, thereby allowing the establishment of several automobile plants in that state!) And this at a time when most commentators agree that West Bengal's process of land acquisition has been as fair and transparent as possible. One hopes Bhattacharjee does not succumb to Banerjee's blackmail. (What's been the total cost of Patkar to Gujarat, to India and the millions who would benefit from the Narmada Sarovar Project?)

But such utterly self-righteous ladies apart, intending investors are equally afraid of our bureaucracy, and endless decision-making processes "" to quote only two examples, tax policies in SEZs are still not clear, and a large investment in a chip-manufacturing facility may never take place because of lack of clarity in government policies.

I wonder whether, at this rate, the huge steel plants planned by Mittal Arcelor, Posco and the Tatas themselves will ever come up! But why single out Indians for the problems in investing in India? Take the question of foreign direct investment. Kamal Nath proudly claimed that FDI could double from the levels in the previous year to $14 billion (one-fifth of China's). To put the growth in perspective, consider:

What percentage of the total inflow was in the form of private equity investments in existing companies, or for takeovers of existing assets, as distinct from investments in greenfield projects? It is only the latter which add to the productive capacity of the economy. A third?

How does this compare with the outward FDI by Indian industry? Assuming that the Tata bid goes through, our outward FDI may well exceed the FDI funds coming in.

But leaving aside industry, the attractions of other things foreign are also growing. Take the question of raising money in capital markets. Apart from private equity investments ($ 7.5 billion), IPOs abroad totalled $ 5.35 billion (including $4 billion in London's Alternative Investment Market, AIM), and FCCBs $5 billion, besides straight debt issues. This compares with just Rs 24,000 crore raised in the Indian capital market. On a different level, country after country in Europe, as also Australia and New Zealand, are offering all facilities for Indian filmmakers to come and shoot movies in their countries. (Leicester, in British midlands, is even promoting a Filmpur to attract Indian producers.) Bollywood is only too happy to oblige. For one thing, it does not need "to grapple with some of the most absurd rules and regulations in the world", for shooting scenes with animals, as Rajeev Shukla wrote some time back. The actors, male and female, also eliminate the possibility of being repeatedly hauled up for endless hearings in distant courts to face charges about violation of forest or other laws. Even the Indian tourist finds foreign lands more welcoming as the much faster growth in outward tourism, as compared to inbound travel, evidences. Hotels are cheaper, there is far less pollution and superior facilities.

But to come back to greenfield projects, the problem of land acquisition does need to be solved. Fair and fast solutions taking into account the interest of all sides will have to be found "" after all, they stopped manufacturing land a long time ago!

Tailpiece: Now that the prime minister is looking at all possible ideas for solving the Kashmir problem, one he should look at very carefully is the status of the French-speaking Quebec province within Canada.

avrajwade@gmail.com