Corporate Jul 23, 2013
The UPA got a tight slap on its face last week.
Just as it was busy rolling out the red carpet for investment by relaxing FDI limits in 13 sectors and promising US giants a more favourabe investment climate in India, steel giants Posco and ArcellorMittal called it quits from the country and scrapped projects worth $18 billion citingregulatory hurdles in securing land and mining licences and weak market conditions.
Even Warren Buffett, one of the world's smartest investment gurus,has given up on India. Last week, Buffett's Berkshire Hathaway decided to discontinue the online insurance distribution business in India even though the potential for selling insurance online in India is high. Berkshire had been in India for just two yearsand its withdrawal came just two days after the government decided up to open India to more FDI.
Such withdrawals come as US vice-president Joe Bidenis here in India to pressurise the UPA to change its 'restrictive policies' which are keeping several US companies from investing in India.
Even the creme de la creme of corporate India has given up faith in India and is investing abroad rather than their home country.
According to a report in Businsses Today, RIL has invested $5 billion in Africa and the US, while Anil Ambani has invested $3 billion globally, which is expected to more than double to $7 billion by 2015. Even the Tata Group draws 65 percent of its revenue from overseas, while the Essar Group is planning a $6 billion investment abroad by 2015 thanks to the current impasse in governance in India.
So what's scaring Indians and foreigners from setting up shop here?
According to a Breaking Views op-ed in Bloomberg by William Pesek, "a rampant political dysfunction has stopped India's progress cold."
Pesek believestoo many prerequisites such as constraints on whom goods can be purchased from; a raft of regulations limiting franchise models and factory construction; and the hair-pulling need to negotiate separately with each of India's 28 states has forced India to fall into a self-destructive pattern of relenting on the big issues.
He also has a solution for the problems of India's policy making.
"What should India do? Pass clear and strong investment laws that will survive the change of government and offer a code of conduct for state leaders. India must strengthen the rule of law as it applies to foreigners so they'll trust their money is safe. Finally, India must think long-term. Today's motivation for inviting more foreign money is to narrow the current-account deficit. The goal should be to raise competitiveness, gain fresh knowledge and create better-paying jobs for the future."
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