FE Editorial Driving away

Written by The Financial Express | Updated: Aug 29 2008, 05:48am hrs
After many publicly fought battles and a flurry of accusations against each other over the past few months, major figures of corporate India are finally speaking in the same voice. Mukesh Ambanis and Rahul Bajajs vocal support for the Tata Nano project in Singur is welcome from the point of view of corporate unity, but worrying for the economy as a whole. Ambani is quite right in pointing to a fear psychosis being created to slow down certain industrial projects, projects that are crucial for continued industrialisation and generation of employment. Of course, the Nano project is critically important for Bengals industrial future and for the future well-being of millions of middle-class citizens who would hope to graduate to driving on four-wheels with the Nano. Petty politics cannot be allowed to hold this project to ransom.

But there are more worrying issues at stakethe possibility that Indian entrepreneurs and investors will start to move their capital out of India to other, more business-friendly countries. The State in India has been bad enough at providing even basic infrastructure for industrythe country has poor seaports, airports, roads and power plants. The government still burdens industry with all kinds of restrictive and complicated rules and regulations which, more often than not, even in this age of liberalisation, are avenues of rent-seeking. If one adds petty, populist politics, which is explicitly anti-industrialisation and luddite, to that list, the scenario becomes very difficult indeed for Indian industry. And Ambanis statement must also be seen in this broader perspective. In a globalised world, with a number of fast-growing economies, especially in Indias Asian neighbourhood, there are plenty of alternative investment destinations, even for the Nano. Most East Asian countries have much better infrastructure than India, cheap labour and attractive government policies. There is no reason to assume that Indian business will be nationalistic and stay in India if its against its economic interest. Statistics suggest that since 2001, FDI in India has been roughly similar to outflows from Indiabetween 2002 and 2004, the outflow was greater. This is most unusual for a developing country. Of course, some of it can be explained by the genuine strategy of Indian firms to look for markets abroad through acquisition. Some, however, may just belong to investors looking for more conducive business environment elsewhere. Is the government listening