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Companies moving out of China; will India seize the opportunity?

J Mulraj | Updated on April 24, 2020 Published on April 24, 2020

There is a pushback against China by several countries. The Japanese Government is paying Japanese companies to shutter their manufacturing plants in China. American companies such as Apple are also planning shutdowns. So are other countries.

Is this an opportunity for India to attract them here, bringing with their investments both jobs as well as a transfer of technologies?

It would depend entirely on not only how welcoming we are to invite them in, but, having invited them to set up shop, how sensible we are in retaining them. It is here that the frequent hand washing of political hands with soap would, hopefully, help in making the stickiness of their grubby fingers disappear.

For, besides the C (for Covid) virus, there is another very old, undefeated C virus which has penetrated the deepest roots of Indian society. This is the Corruption virus. It is this that threatens to kill the opportunity of more foreign investment. That, plus yet another C virus, Cussedness! As evidenced in, initially, the absurd demand raised on telcos for a share in non-telecom revenue, and, subsequently, by the cussedness of DoT in not accepting the incorrectness of the demand, of exempting PSUs from its harshness, even at the risk of Vodafone, one of the largest foreign direct investment, leaving the country.

GOI cannot, on the one hand, be inflexible on the issue of AGR for telcos, and, on the other, lay out a red carpet for Japanese, American, Korean and others.

Senior journalist RN Bhaskar suggests that India opens up dedicated export zones and invite all countries, including China, to establish manufacturing facilities there, for export (and, if for domestic sale, upon payment of relevant import tariffs). Such zones should be freed from the ‘inspector’ raj and that would take care of the two other C viruses.

The tremendous deal Reliance Jio signed with Facebook, selling a 9.9 per cent stake for $5.7 billion (₹43,500 crores) point to the advantages India offers. The combination of Facebook owned Whatsapp, and Jio’s connect with the neighbourhood ‘kirana’ or grocery store, will offer a payments platform that would give strong competition to PayTM, Google Pay, PhonePe and others.

All countries will, once the Covid pandemic is over be looking to rebuild their economies and to find ways in which to shore up Government finances. This column had suggested five options for GOI to consider, to raise resources. One of those was to settle disputes like the AGR one, and move on in life. Other countries have rules and laws simple to understand, and give permissions fast.

India does the opposite. We frame unnecessarily detailed and highly complicated laws (with enough interpretation loopholes) and combine that with a lethargic enforcement mechanism.

The world is topsy turvy. After negative interest rates (an abomination of financial theory) we now have negative oil rates! Crude oil, and its derivatives (petrol, diesel, etc) require storage. Demand for petro products having run out, due to lockdown, and there was not enough capacity to store the crude oil traders had gone long on. In order to square their trades, they offered the counterparty some $39/billion.

The important thing is that contracts must be enforceable, another prerequisite for attracting foreign direct/indirect investment. Sadly, there is too much interference, either by courts or by Government, in watering down contracts. This must be stopped.

So, yes, there is a huge opportunity for India to attract FDI.

Whether it will attract depends on whether the Centre tackles the Corruption and Cussedness virus, on whether we continue interfering with market forces and privy to contracts and whether our judicial system can speed up as is overdue.

The writer is India Head — Finance, Asia/Haymarket. The views are personal.

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Published on April 24, 2020
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