FDI and economic security need to be in sync: The Tribune India
Every country in the world, without exception, is facing a shortage of resources in this volatile and uncertain time of immense challenges. Countries that have the capacity seek external resources, in the form of foreign investment, to enable development and growth at the highest possible level. India also seeks foreign investment which brings technology, creates jobs and generates additional resources. It has been estimated that as a result of India’s efforts, FDI per capita is around $60. That’s a good thing, and India is probably the fastest growing country right now.
But to generate several million new jobs, overcome poverty and solve the multiple problems facing India, an FDI of $100 per capita would put India in a much higher place in the world. Can this be done since IDEs have done well, increased? And can this be done in a world where competition for FDI is fierce, with countries offering attractive incentives to potential investors?
Competition is the spice of life. This creates pressure and gives rise to creative ideas and strategies. India can prosper!
First, the question of the eligibility of foreign investors to hold more than 50 per cent of the capital of a company. This is widely permitted today. It was a major problem before, a non-problem now. Even the defense and insurance industries allow 74% foreign ownership in a joint venture. India has crossed a ‘mental’ bridge by allowing more than 50% foreign ownership, having realized that equity is only one aspect of ‘control’ and ‘regulation’.
Second, processes and procedures, which are never fast or time-limited in India. There is no one-stop customs clearance in reality, especially when the federal/central government and the state government are both involved. This must change. Many countries have an “empowered” Board of Investments (BoI) for promotion as well as authorizations. Recognizing the hierarchy of bureaucracy and the reality of decision-making, the “BoI” should be carried out by the Prime Minister’s Office (PMO). This was the case in 1991-96 when the Foreign Investment Promotion Board (FIPB) was functioning. The BoI or FIPB should be headed by a secretary of the Indian government who has the seniority to command respect. Proposals must be approved or returned within 90 days. There is an organization, “Invest India”, but to arrive at 100 dollars of FDI per capita, the office of the Prime Minister must be more involved.
Third, India needs to develop a dynamic strategy and plan to reach out to the top 500 companies in the world to invest in the country. Much has been written about changes in supply chains and the relocation of industries, but India has seen little benefit from these ideas. Vietnam and Thailand in Asia are the real beneficiaries. Moreover, their BoIs follow an aggressive promotion strategy as well as an efficient approval process. The top 500 companies have significant supply chains in multiple countries and their partnership would be essential.
Fourth, many policies are vaguely worded. This leads to a lack of clarity and a delay in decision making. Policies should be specific in their wording and clear to all readers. This is a challenge for Indian policy and process writers. Whenever something is written that is subject to different interpretations, there are delays and there is room for corruption. Delay equals disaster.
Fifthly, the stability and continuity of the policy, of the procedures. No U-turns, no surprises! No retroactive action. These problems haunt foreign investors when it comes to India. India is notorious for following stop-go policies, changing procedures at will and consistently failing to ensure continuity. This is a big problem for all foreign investors. The only real safeguard can be provided by law and legislation passed in Parliament, as passed to remove retroactive action.
Sixth, India is known to be a difficult place to find reliable joint venture partners. These are public and private sector companies. The tendency of foreign investors is to focus on a few Indian companies for partnerships due to their reputation for trustworthiness and dependability. The government cannot solve this problem. This is a private sector problem and there have been many joint ventures (JVs) that have dissolved due to a ‘cultural’ mismatch. Both parties act hastily to conclude a JV without thinking about every detail. Caution is the best way to go, and the perspective should be long-term, not short-term.
Seventh, there is a constant need to “educate” foreign investors about India. It is a country, but not a market. It is a country, but almost every state is different from every other state. Huge differences exist in terms of customs, cultures, languages, from state to state. State governments have a lifespan of five years and changes occur bringing new policies.
These are some of the questions that need to be hammered into the minds of foreign investors to help them avoid mistakes and then blame India. Investment education is in India’s best interests.
Eighth, while the Indian strategy mainly focuses on the major economies of the United States, Japan, South Korea, United Kingdom, France, Germany and Italy, strategies and country-specific plans are needed to get the right direction in terms of technology and business. And smaller economies are equally crucial, such as Israel, the United Arab Emirates, Singapore, Norway, Sweden, Finland and Denmark, with specific strategies for niche technologies. The Indian government has understood this and its foreign and trade policy reflects this reality. Indian industry needs to adapt and adopt.
Ninth, India must have a foreign investment war room using advanced digital technologies to have the latest data on trade, investment, companies, technologies, sectors, personnel, role of the Diaspora, etc.
The FDI War Room is an essential strategic part of the FDI plan because data is critical and in today’s era data is constantly changing.
These are some key issues to raise the level of FDI to $100 per capita. India’s global position would then be much more important. Moreover, the positive impact on employment, development and growth is considerable! At the same time, the interest of national economic security must be taken into account. It can be ensured in various ways, even by drawing inspiration from the structures and practices of several other countries. The National Security Council Secretariat is the appropriate organization to ensure this. Over the past two years, India has in fact taken some long-awaited and critical economic security measures. This process and this policy must be maintained.