India against investors?

| Updated on November 14, 2019 Published on November 14, 2019

That’s the story emerging from the caprices of the Andhra Pradesh government

We’ve had two reminders this week of just how perilous it can be to do business in India. Announcing Vodafone’s quarterly results, the company’s global CEO Nick Read said its India operations, beset by huge tax demands and need to invest in costly spectrum, were on the verge of collapse. He later said he’d been misquoted, but rumours have already been doing the rounds that Vodafone will find it tough to continue here, hit as it has been by multiple adversities. Almost simultaneously, Singapore released a bland press release saying the city-state’s companies would keep investing in India even though the Jaganmohan Reddy government in Andhra Pradesh on Monday cancelled the Amravati mega-project to build a new capital city for the State. “The Singapore Consortium companies have stated the project has cost them a few million dollars, and its closure does not impact their investment plans in India,” said Singapore’s Ministry of Trade and Industry (MTI). Several renewable energy companies have also been battling the Andhra Pradesh government in court because the State government has peremptorily demanded they slash rates and the State’s distribution companies have cut back on power taken from them. Renewable energy companies have made large investments in the State.

Today, though India likes to boast it’s risen 14 notches to 63rd position in the World Bank’s ease of doing business index, the fact is international investors have become more wary than ever of investing in India. This could account for why so few companies being forced to shift base from China are considering India as an alternative. A study by Japanese financial powerhouse Nomura found out of 56 companies moving from China between April 2018 and August 2019, 26 were heading for Vietnam and another 11 to Taiwan (though this figure might include some Taiwanese firms shifting back). Another eight switched their manufacturing base to Thailand. India was way down the charts with three companies coming here while two went to Indonesia, ASEAN’s biggest market.

The list of companies that have come a cropper or faced difficulties in India is lengthening by the day. Some have been hit by extortionate tax demands, other by court rulings and others by almost whimsical State government decisions. Bihar Chief Minister Nitish Kumar wooed Carlsberg to set up a brewery and then three years later shut it down after imposing prohibition in 2016. Nokia was forced to leave the country after receiving a whopping tax demand. Now, Amazon and Walmart, are having difficulty coping with the chopping and changing rules and there are even murmurs Walmart might sell and leave the country. If that were to happen the damage to India’s reputation would be incalculable. Governments at the Central and State levels would do well to stop changing the rules of the game, before investors conclude India’s just not worth the risk.

Published on November 14, 2019
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