Year 2000 onwards, there was a huge hype around ‘Brand India’. India was constantly being compared to China, so much so that well known journalist Thomas Freidman wrote his bestselling ‘World is Flat’ inspired by India and China. The two Asian giants were seen as world’s biggest growth engines and 21st century superpowers. Investors were queuing up, out of curiosity if not with real currency bags. All in all, the Indian success story had been well positioned and sold.
It still is. But the hoopla has fizzled out to some extent. Slowly, there has been a reality check. Our third world physical infrastructure is not supporting our first world aspirations. We are keen to strike deals, but are slow on follow-ups. And in our mindset, we are yet to behave and respond to international standards when it comes to delivery.
For example, Commonwealth Games gave us very bad press. So has the 2G scam. Prime Minister Manmohan Singh says that he fears India may be perceived as a scam riddled country.
When it comes to ground reality, the picture is not much more inspiring either. A 2009 survey of the leading economies of Asia revealed Indian bureaucracy to be not just the least efficient out of Singapore, Hong Kong, Thailand, South Korea, Japan, Malaysia, Taiwan, Vietnam, China, Philippines and Indonesia; further it was found that working with India`s civil servants was a "slow and painful" process.
Intermittent terror attacks only add to security concerns, especially when these target financial capital Mumbai.
Despite the impediments, the reality is that a billion people are difficult to ignore. Especially when the population girth in terms of the middle class is increasing.
What we need to do to encourage investors is to cut the red tape and make the system more accountable. Any global investor would want a hassle free partnership with a country that is systematic in its approach and more transparent in its dealings.
FDI decisions are taken based on some hard facts like size of market for a particular product, investment climate of the country, administrative hurdles, security situation, sovereign ratings and long term interests etc.
Sovereign ratings are in turn based on criteria like fiscal management, governance and infrastructure. As India rates poorly on most of these ratings, agencies like Fitch and S&P have downgraded India from time to time. On the other hand, Moody’s upgraded us immediately after announcement of fiscal reforms.
In this scenario, strong GDP growth figures continue to present a reason to have confidence in India, the success story.
According to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, `World Investment Prospects Survey 2009-2012`, India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period.
A report released in February 2010 by Leeds University Business School, commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries where British companies can do better business during 2012-14. As per the 2010 survey of the Japan Bank for International Cooperation released in December 2010, Japanese investors continues to rank India as the second most promising country for overseas business operations, after China.
India also gained after the implementation of its consolidated FDI policy. The consolidation, first undertaken in March 2010, pulled together in one document all previous acts, regulations, press notes, press releases and clarifications issued either by the DIPP or the Reserve Bank of India (RBI) where they relate to FDI into India.
According to the modified policy, foreign investors can inject their funds through the automatic route in the Indian economy. Such investments do not mandate any prior government permission.
The FDI rules applicable to such sectors are now, therefore, fairly clear and unambiguous and thus a welcome move.
What the government now needs to do is to build on this and announce quick policy decisions on retails sector and clear insurance and pension reforms. Possibly, as quickly as in this Monsoon Session of Parliament itself.
(The article is a part of the Looking Ahead Series.)