I, Dipankan

Thoughts on Flailing Foreign Investments

India is a land of wonders, or so have we been taught in our early years. How wondrously it might manifest itself, is being revealed now. Over the years, the political establishment has demolished regard for conventions and excavated loopholes in laws to bypass obligations. The Budget 2019 brought in radical changes to the competitive structure of the Indian business setup. But in chasing a populist dream, the government seems to have missed the train to globally competitive market economics. While the domestic market seemed euphoric with frenzy at the spread of schemes laid out for propping up investments back home, the foreigners haven’t responded in kind: instead, they are on a race to pack their baggage and fly out.

With a flurry of quota reservations being carved out every other day in the hope of realizing political brownie points, the signal sent out to potential foreign investors is dampening. Jagan Reddy, Andhra Pradesh’s newly elected Chief Minister, announced a 75% reservation of jobs in industrial and infrastructure ventures for State natives. Kamal Nath, Madhya Pradesh’s CM from the Congress, also whipped up questions on crossing the fine line when he announced earlier this month that 70% of jobs would be reserved for locals even in private sector companies. The Modi government is no stranger to quota politics, as they introduced a 10% quota for economically backward people earlier. With the Supreme Court laying bare in Indra Sawnhey (1992) that total reservation cannot cross 50% of the workforce (to preserve merit for obvious reasons), and the Constitution explicitly stating that discrimination based on place of birth is forbidden, the rules seems to have been thrown for a toss.

While there are workarounds to policy tweaks, they are by their very nature an issue of contention. After Modi’s landslide victory in the General Elections of 2019, most expected him to undertake and implement radical economic reforms that would help smoothen the country’s business environment and pave the way for easier foreign investment. Instead, complications in domestic policymaking is only sending out a beeping alert to people who wish to invest in India: a clear no-go. The National Minimum Wage scheme, which overrides differing wages across a plethora of states, snatches away the incentive of investing in a backward state with lowly wage rates. While India touts itself as a competitor for foreign investment with other countries, it has already higher rates in land, loans, electricity, rail and air freight than its competitors. Further, the trend of introducing quotas and minimum wage levels are serving as a retarder to an increased flow of investments. Contracts, that are considered sacred in many successful markets, are being re-worked upon to favour domestic players. The recent changes in e-commerce policy that were doled out by the Ministry of Commerce last year, was specifically cut out to favour Reliance’s online arm over Amazon and Walmart. American firm Walmart, which opened base in India and purchased a $16 billion stake in Indian online retailing giant Flipkart, was taken aback by the developments. This lead to a diplomatic schism between India and the United States, which has developed into a point of difference between the two partners over several bilateral meetings.

As the government lacks the resources to invest in industries itself to revive a faltering economy, and depends increasingly on foreign and private investments to pick up, it cannot solely expect contributions from the sector unless sincere efforts are put in to effect such changes from the other end. The vehicular mode for such a metamorphosis is wise decision making from the highest rungs; after all, populism can never go hand in hand with credence.

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