The Hindu Business Line : Proposed Investment Commission — Hope for FDI flow into small, medium units

THE Indian Investment Centre (IIC) is going. It will be replaced by an Investment Commission, with a broader mandate — to develop investment both from foreign and domestic sources. The new initiative, promoted by the Finance Minister, Mr P. Chidambaram, has been greeted with a cautious welcome by responsible corporate sources.

Whether the new Investment Commission will succeed where the old Investment Centre failed depends as much on its leadership as on the politics of the coalition that governs India. If the Investment Commission is not to be old wine in a new bottle, it has to guard against the failings of the old Indian Investment Centre.

The Commission is mandated to seek meetings and visits with industrial groups in India and with large companies abroad, particularly where there is a dire need for investment. The Commission is expected to "secure a certain level of investment every year, and its progress will be reviewed every quarter.

The Commission is also expected to make recommendations on the Government policy and procedures to facilitate greater FDI flows into India and all policy recommendations emerging from its recommendations will be brought before the Cabinet Committee on Economic Affairs for approval". The Investment Commission is located in the Finance Ministry, which also services the Foreign Investment Promotion Board (FIPB). Whether it will take over the functions of the FIPB is not clear. It will have to have an effective and proactive Secretariat, which has to coordinate not only with the other wings of the Finance Ministry but also the Commerce, Industry and External Affairs Ministries.

It was another brilliant Finance Minister, (late) T. T. Krishnamachari, who set up the Indian Investment Centre in the 1960s. He located it under the Finance Ministry and had induced a well-known financial expert, Mr R. S. Bhatt, to head it. Mr Bhatt had experience of financial markets and had worked on the setting up of the Unit Trust of India. T.T.K. had confidence in his ability to enthuse investors both from abroad and India to invest in the country.

The IIC was itself a well-structured institution, although it was situated within the confines of policy as practised in the 1960s and 1970s. It had offices in London, New York, Frankfurt, Tokyo and Singapore for various periods of time. After the first Chairman, it slid into periods of relative somnolence, but had brief periods of revival under proactive leadership.

In particular, it gained prominence after the efforts taken by its representatives at various international centres. Particular mention should be made of the redoubtable Mr N. K. Singh, who played a vital role in enabling the collaboration of Suzuki in Maruti.

Later on, his example was followed by P. G. Mankad, who was of considerable assistance to Indian industrialists seeking out Japanese collaborations. The IIC representatives in Japan were particularly successful windows on Indica and were able to exert their influence because of their domain knowledge of India and the States.

I remember how the IIC was an invariably effective port of call for intending Indian entrepreneurs keen on collaboration with foreign industrialists. They also played a role in stimulating non-resident Indian investment in India.

The Indian Investment Centre had its many problems. One was that it did not have any executive role. It was purely recommendatory. It did not have any authority to clear proposals. Obviously, that would have meant stepping on the toes of different Ministries. This lacuna also meant that IIC was genetically "doomed" and could not succeed in its declared objective to the extent that one would have wished for. While IIC did a lot of promotional work, it was a weak reed when it came to obtaining clearances.

The newspaper reports announcing the formation of the Indian Investment Commission also state that the IIC was able to mobilise only Rs 1,275 crore of foreign investment during the period 1981-91. It also adds that this led to the closure of its foreign offices in 1992. My recollection is that the closure was an offshoot of the austerity measures that followed the 1991 crisis and did not follow any systematic review of IIC's effectiveness.

Further, it was during 1981-91 that the IIC offices at Tokyo, Frankfurt, London and New York played an important role in attracting investments into India. Further, the IIC was a window for NRIs whose investments into India were encouraged for the first time during this period, although it lacked a positive approach to FDI in general.

Can the proposed Investment Commission be more successful than IIC? It is, indeed, starting out with an advantage, in that it is going to be headed by an eminent financial expert, Mr Victor Menezes, formerly of Citibank, who has also worked in India. He will surely know what worries foreign and domestic investors. But will he be able to swing the authorities of the various Bhavans in Delhi and the State Governments?

The problem of foreign investors in India cannot be solved merely by waving the magic wand of a financial genius. It has to conquer the various procedural obstructions placed in its path by the clearances required at the level of State Governments as well as the Centre, apart from the ideological obstacles posed by the complex coalition that governs India.

There is, of course, much to be learnt from the Chinese experience in this regard. It appears that in China there is a considerable amount of decentralisation of authority, even to the level of Township Administration. This model deserves to be replicated. But there is also need for avoiding multiple clearances even in a decentralised set-up. There should be genuinely a single window — not a window with multiple offshoots.

The success of the Investment Commission will depend on its enabling a smoothing of the clearance process at State levels. There is also considerable merit in encouraging the Chinese practice of welcoming foreign collaboration with efficient public sector enterprises.

Talking of foreign investment in India, one is tempted to go back once again to the example of T. T. Krishnamachari, who utilised his frequent visits abroad to initiate and facilitate collaborations between Indian industry and foreign corporates. I remember perusing a copy of a letter written by him in the 1950s, after a visit to Germany.

He wrote to J.R.D.Tata suggesting a collaboration between the house of Tata and the German auto major Mercedes Benz. He had spoken to the latter while in Germany. Such a gesture suggesting a collaboration between an Indian corporate and a foreign multinational would be unthinkable in these days when comradeship between corporate honchos and political leaders is looked on with suspicion. But TTK's self-confidence and a grand vision for India's manufacturing prowess were in a class by themselves. So was JRD's response, which was enthusiastic and may have been in the works, even before TTK's initiative. Thus started the famous encounter of Tata with motors — culminating in its current successful emergence as a global automotive power-house.

The proposed Investment Commission will, no doubt, need offices for facilitation abroad. These offices will have to be manned by persons of proven experience — some, at least, drawn from officers who have worked in State Governments in areas concerning industrial promotion.

Care has to be taken to see that these positions do not decay into parking places for also-rans in the civil service or for political patronage. But, given a strong Investment Commission put as the one proposed by Mr Chidambaram, it is certain that the foreign offices will be well-manned.

The Government is expecting a massive enhancement of FDI flows from the current $4-5 billion a year. An Investment Commission by itself would not be able to achieve this miracle. It is necessary, but not sufficient. It has to surely invoke in the State administrations a change of mindset which enables a more investor-friendly and less bureaucratic approach.

As part of the new initiative, the Government would do well to call a conference of Chief Ministers to focus on this issue and elicit a considered response of the States to the problems commonly faced by intending investors. These extend from the availability of land through a host of other problems, like infrastructure, environment clearances and labour law enforcement.

The Central Government has a duty to clear the decks for the Investment Commission. It may be useful to invite a few existing foreign investors to the meeting to explain how they overcame the hurdles placed in their way and what suggestions they have to offer for removing them.

The proposed Investment Commission is a good initiative. But its success cannot be measured at quarterly intervals, which reports indicate the Government's intention to be. Increasing FDI is a long-term challenge and its problems will take time and money to be overcome.

Here is to wishing the Investment Commission a good start. Let it be the blazing success it is designed to be. Above all, let it also open the doors for FDI in India's small and medium enterprises. Only then can FDI really make a difference to India's millions of jobless and initiate the transition for India to a global economic super power.

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