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Making foreign direct investments attractive
PK Vasudeva
It was due to poor balance of payment situation that India liberalised its economy and opened its market for the inflow of foreign direct investments in the country in 1990. One cannot forget the ousting of Coca Cola from the Indian market, but today the brand along with Pepsi Cola is enjoying a significant market presence. Joint ventures like the Maruti-Suzuki, Hero-Honda and Escort-Ford are some of the success stories in the automobile industry. Power projects like the Enron and Cogentrix are likely to improve the country's power shortage.Though India had fixed its target for the growth rate of gross domestic product at six per cent plus, the Indian expectations of FDIs in the country have been below par. In 1994, the total inflows of FDIs for the Third World countries were of the order of $84 billion. This was more than a 225-per cent increase in the amount of global investments flowing into these countries compared to 1990. Out of this, India's share was less than $1 billion. On the other hand, China
could increase its FDIs to a whopping $34 billion in the same year. It is pertinent to say that there is no comparison between India and China, because its reforms started under chairman Deng Xiaopeng during 1978-79, more than a decade before India set its sights on economic reforms in 1990. India can also hope for a big surge in FDI inflows, when there is political stability. The track records show that in rupee terms the FDI in 1991 was Rs 5,341 million, soared to Rs 3,20,717 million in 1995 with the cumulative total for the whole period amounting to Rs 5,95,399 million. A large number of FDI inflows (50 per cent) relate to mega projects like telecommunications, power, petroleum and transportation. The only redeeming feature of these FDIs is that about $2 billion of this amount materialised in 1995-96.The US commerce secretary, William Daley, said during his recent visit to India, that the US-India commerce offered nearly unlimited scope and the bilateral trade this year might cross the $10-billion mark.
Between 1991 and 1996, bilateral trade between the US and India rose 83 per cent in the first 18 months and thereafter it rose another 18 per cent, he said. US companies, he said, could provide a wide range of technologies that would help India's infrastructural development. He identified power generation and telecom products and services as sectors where the US commercial cooperation could be of particular help, he added. These are clearly long gestation projects with FDI inflows occurring in driblets in the initial stages. It is another story that FDI inflows have been hamstrung by hiccups at the political levels at the centre and the states. If Enron, Cogentrix and Suzuki-Maruti are examples, the country has made a mockery of fast-track projects. India is in a Catch-22 situation. Foreign investors-American, European or Japanese as the case may be-openly admit that there is a sense of reluctance about, too rapid a foray into India as much of what passes for infrastructure in India is deficient and
unreliable. For them to stake funds in infrastructure without clear assurance of political stability is like asking for the moon. The "hard talk" resorted to by foreign delegates on the slowdown of economic reforms in the country during the recently concluded Indian Economic Summit testifies that foreign investors' enthusiasm to tap the large Indian market is giving way to frustration. The reasons are not far to see-the pace of reforms have failed to match the expectations of foreign investors and a lot of red tape needs to be cut. The current phase of globalisation has brought in a considerable degree of openness to international trade, investment and finance in India. There is also a marked increase in the flow of services, technology and information. All this is welcome as far as it helps in the acquisition of technological and managerial capabilities at the micro level. If it becomes a threat for the indigenous industry, then a rethinking is called for. One cannot lose sight of national interests and
development objectives to please foreign investors. The autonomy of the nation in managing its economic affairs already stands reduced, in case a free play is given to the MNCs in the country. One the other hand, if taking over is encouraged by MNCs, it will improve competitiveness of Indian companies and they also improve shareholders' wealth. MNCs can give them a good entry strategy and help them set up base in India. With liberalisation, competition from overseas is forcing domestic industry to concentrate on core competencies. Several corporates have diversified their portfolios over the last 10 years and have ended up with more than they can chew. The result is that they are sellers in the mergers and acquisitions market. And the buyers are mainly overseas players seeking a distribution network in the country to attract the 200-million middle class customer base. The future of FDI flow lies on the next government which will be formed by March 15, 1998. However, speaking at a plenary session at the
Indian Economic Summit of the World Economic Forum, Murasoli Maran said that the process or the economic reforms in the country was irreversible and that investors need not worry about it. The government is making all efforts to ensure free flow of capital into the country to cut down red tape, he said. "In my opinion, the Foreign Investment Promotion Board (FIPB) must go," because this will reduce the central government's interference in foreign investment-related economic matters and will provide freedom to states to increase FDI inflows. Besides improvement of infrastructure, a great level of transparency in the government is needed. It will finally be the states that have to convince FDIs regarding infrastructure, competitive market and transparency in dealings. Above all it is a stable government and an atmosphere fee from terrorism will attract FDI inflows.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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