Business consultant Adrian Mutton says it takes courage for a foreign corporation to make a big-ticket investment in India given the uncertainties thrown up by capricious twists in government policy.
Companies have long griped about India’s byzantine rules and suffocating bureaucracy, but recent policy flip-flops have further soured the investor mood.
“You have got to be a pretty brave CEO to gamble on a major investment decision in India, especially if you think that decision may be overturned,” said Mutton, who heads India-based Sannam S4, a consultancy which helps firms enter India.
The latest, and for many investors most egregious government measure, was announced in last month’s budget which included provisions allowing India to tax foreign takeovers retroactively to 1962.
The measure seeks to override an Indian Supreme Court judgement in January that rejected a US$2.2-billion tax bill slapped on British phone giant Vodafone over its 2007 purchase of a local operator.
“The Indian government is perhaps hoping the country’s economic growth potential will retain companies like Vodafone,” said Deepak Lalwani, chief of India-focused investment consultancy Lalcap.
“However, fresh capital will be fearful of the business and investment climate and will be hesitant to come,” he said, cautioning that poor investor sentiment “might dramatically slow future foreign capital.”
Already, gross foreign direct investment in India has fallen by a quarter to US$20.3 billion in the fiscal year that ended last month, down from US$27.1 billion the previous year, according to official figures.
In a letter to India Prime Minister Manmohan Singh earlier this month, seven global business groups, including the Confederation of British Industry and the US Business Roundtable, warned of a “widespread reconsideration of the costs and benefits of investing in India.”
The investment slowdown comes as India urgently needs foreign funds to upgrade its dilapidated airports, roads, ports and other infrastructure in order to ease bottlenecks and spur growth.
Economic expansion for the last fiscal year is estimated to have been about 6.9 percent, the -second-slowest rate in a decade.
The retroactive change to India’s tax code was only the latest piece of news to dismay foreign investors, already preoccupied by policy paralysis on reforms to liberalize the economy and corruption.
The investment plans of Norwegian telecom giant Telenor and other foreign firms who had jumped into the world’s second-largest mobile market were left in tatters earlier this year when the Supreme Court of India canceled their licenses.
The court’s move stemmed from a scandal in which the government had issued mobile licenses in 2008 at throw-away prices, costing the public treasury up to US$39 billion, in what is believed to be India’s biggest graft case.
The license cancelation “was a shock for the foreign operators, especially as this was a ruling on a government policy decision,” said Kamlesh Bhatia, India research director at global consultancy Gartner.
In December last year, in a major U-turn, the government reversed a decision to allow foreign supermarkets into India after a key ruling coalition ally said the move could hurt millions of small shopkeepers in the country.
“The reform process has really just fallen apart,” Indian Council on Global Relations head Manjeet Kripalani said.
Further discouragement has come from a slew of stalled projects, including South Korean steelmaker POSCO’s plans to build a US$12-billion steel mill — first announced in 2005 and trumpeted as India’s biggest foreign investment deal.
Late last month, an Indian tribunal suspended environmental clearance for the plant, keeping the project in limbo.
However, many global companies have little choice but to enter the increasingly affluent country of 1.2 billion people if they want to boost revenues in light of the slowdown in developed economies, Mutton said.
“You cannot afford not to be in India as a marketplace when you look at the huge population,” says Mutton, whose India advisory business has tripled in size over the past few years.
“In boardrooms around the world, people are saying if we are going to deliver growth, where do we go? India inevitably comes up. They may know it will be a pain in the backside, but they have to make the best of the situation,” he said.
UNWANTED ATTENTION: In the past two months, the automaker has made headlines, with a Chinese military ban of its vehicles and a protest at an expo Electric vehicle maker Tesla Inc, facing scrutiny in China over safety and customer service complaints, is boosting its engagement with regulators and beefing up its government relations team, industry sources said. Tesla’s change of strategy leading to more behind-the-scenes interaction with policymakers in Beijing compared with relatively little previously shows the seriousness with which the US automaker views the setbacks in its second-biggest market. TALKING SHOP It also comes at a time when China is trying to regulate large and powerful private companies, especially in the technology sector, on concerns about their market dominance. As they do elsewhere, regulators in China, the world’s biggest
Dell Technologies Inc has agreed to sell its Boomi cloud business to private equity firms Francisco Partners and TPG in a cash deal valued at US$4 billion, as part of efforts by chief executive officer Michael Dell to trim down the PC maker. The deal is expected to close by the end of this year, the companies said in a statement on Sunday without providing additional details of the terms. Dow Jones had earlier reported that the companies were near a deal. Boomi specializes in integrating different cloud platforms for companies and has more than 15,000 customers. Dell agreed to acquire the company for
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that it is considering further capacity expansion as customers are requesting more capacity due to rising end-market demand and persistent supply constraints. The Hsinchu-based company said that emerging technologies and applications from 5G, artificial intelligence and electric vehicles are driving semiconductor demand. The semiconductor industry has a positive outlook for this year and beyond, with shipments of all diameters of wafers to increase through 2023, GlobalWafers said. “We have received requests for expansion from many strategic partners. We are now in discussions with customers,” company chairwoman Doris Hsu (徐秀蘭) told a
XSEMI: The new venture would consolidate the strengths and resources of the two market leaders to secure chip supply and offer clients total solutions, the partners said Hon Hai Precision Industry Co (鴻海精密) and Yageo Corp (國巨) yesterday signed an agreement to form a joint venture called XSemi Corp (國瀚半導體) to develop” small ICs” priced under US$2 per unit, marking the latest effort by Hon Hai to bolster its foothold in the semiconductor market. The collaboration fits into Hon Hai’s plans for expansion by providing a steady supply of small semiconductors, while also serving the global market, the companies said in a joint statement. The new company, to be located in Hsinchu, would “consolidate the strengths and resources of the two market leaders” to provide a “complete semiconductor