The very first statement from the industry as 2010 rolled in was from LN Mittal, who questioned India?s ability to handle big projects. The second was a non-statement: both The Financial Express and The Indian
Express reported the Ratan Tata-led Investment Commission?s plan to shut shop.
There is another set of news this week. The latest data on US residential and shopping mall occupancy shows a 30-year low. Simultaneously, the US Bureau of Labour Statistics has shown a dip in creation of new jobs. How does it affect India? Numbers of those magnitude can only mean a renewed weakening of the recovery in the US equity markets and of the US dollar.
The corollary is a fresh surge of inflow of funds into the Indian market. As January opened, the total inflow of foreign funds into India reached $1.04 billion, coming on top of a record $17.4 billion in calendar year 2009. India will not, of course, be the only emerging market to benefit, but numbers like a projected 7.75% growth rate of GDP for 2009-10 and a billion-plus population with an average age of 23 years are difficult to match.
These are the very notes the government will play on, especially during January, and at the mecca of investors, the World Economic Forum in Davos. One is inclined to agree with the story.
If you want to know why the India story is playing out so well, the best one can do is take a ride to the most backward district of Haryana, Jhajjar. The town, an expected backwater, has developed a peculiar problem of late?shortage of residential accommodation.
The reasons are two power projects coming up around the town. One is a 1,500-MW plant being built as a three-way venture between NTPC, the state power utility and the Delhi government. The other one is spearheaded by China Light Power for a 1,320-MW plant. The town is flooded with employees of the companies, including several Chinese workers who need places to stay. It is a remarkable sight. Obviously the rub-on impact on the other sectors makes all this a welcome development for the area.
This is also the reason why the India story often goes sour. Investments of this scale mean massive changes on the ground as in case of Jhajjar. The contours of the town are already melting into a new city. So are identities, land rights and often culture. Such developments create tension along with opportunities. The state has to manage these tensions and create a way out for the money to flow in. A civil dispute can easily morph into a general conflict.
These are the reasons why Mittal makes the point that other large investors want to make as well. Tata said almost the same thing in an interview with FE. The main mandate for the Investment Commission was to be the facilitator for FDI in and out of India. But with a problem like Singur running in the backyard, Tata must have often found it hard to convince the investors that their money was safe in the land.
So, here is the problem. For the political establishment, portfolio investments are fine as they happen in the entrails of the NSE and BSE. But here the regulators get concerned at the fast pace of inflows, as happened in 2009 and threatens to happen in 2010. They have gone on record saying FDI is preferable.
But when FDI comes, it will transform villages and towns. Those developments in turn are anathema to politicians and segments of the civil society. So, it seems that Mittal does have a point. India has to make up its mind if it wants investments of the sort that big projects entail. The companies and promoters can only bring in the money and technology. Preparing society for changes in lifestyle is a very important component of making the investments work. And this is something only the government can do. In 2010, conservative estimates have pitched the possible FDI coming into India at over $30 billion. The sum is more than what India has raised as FDI in more than a decade. Managing the fortunes of so much investment has to be the government?s priority for quite some years now. For instance, we had set up a Foreign Investment Implementation Authority to network with state governments to get clearances. It is necessary to change its mandate to get these problems sorted out as they arise. To get an idea of how significant the benefits are, just consider that the combined power capacity of the two Jhajjar projects is almost double what Haryana currently produces.
Ministers and their friends, in meetings with business journalists, often accuse us of being soft on industry and picking on the government?s misdeeds. The government is a soft target, is the general complaint. What they overlook is that problems like these are squarely in the domain of the government. Industry is part of the solution and not the problem in the first place.
subhomoy.bhattacharjee@expressindia.com