India hostile to foreign investors
India hostile to foreign investors
THE BEST COMMENT WILL WIN A YEAR'S SUBSCRIPTION OF BUSINESS TODAY
Rohit Ashwini Kumar, PGDM, IIM Calcutta

"India is a growth-hungry nation that welcomes foreign capital"



Some would have us believe India is indeed a hostile place to invest, with risks outweighing the returns. Reality could not be more different. Let's start with government policy. Following the prime minister's directive to unleash the "animal spirits" of the economy, the government has opened the doors to FDI in a multitude of sectors.

It increased FDI caps in telecom, civil aviation and defence. It has eased norms for FDI in multi- brand retail and held its commitment to 100 per cent FDI in single-brand retail. Investments in many sectors where FDI cap is less than 50 per cent are now processed through the automatic route.

Qualified foreign investors can now directly invest in mutual funds, equities and corporate bonds. Debt ceilings of FIIs have progressively been enhanced. Some cite retrospective taxation laws and GAAR as anti-investor.

While retrospective taxation dealt with a one-off case, GAAR has been a constructive law seeking to plug genuine loopholes in double tax-exemption treaties. Today, there is cross-party consensus that to eradicate poverty, vast social spending programmes are necessary. These will not be sustainable unless there is growth, which heavily relies on foreign capital.

Mohul Roy PGP, IIM Kozhikode

"India is faltering on economic potential and certainty of rules"



India has been attracting foreign investor interest since economic liberalisation. But matters have worsened recently with FDI flows down 29 per cent in 2012, FII flows dipping 36 per cent in 2013 and foreign players like Nokia threatening to exit.

Foreign investors look at two things while assessing investment destinations - economic potential and certainty of rules. On both, India is faltering. Weak growth, stubborn infl ation, depreciating currency and a huge fi scal deficit (4.9 per cent in 2012/13) make the economy unattractive.

On the policy front, the 2012 Budget brought in the General Anti-avoidance Rules with the potential to harass foreign investors. The same Budget tried to overturn the Supreme Court order which dismissed a $2.2-billion tax claim against Vodafone. Although both issues were sorted out eventually, they gave an impression of unfair "shifting of goalposts", a strict no-no for foreign investors.

While sectors like retail have been opened up, restrictive clauses and political opposition are making companies jittery. Simple deals like Vedanta's acquisition of Cairn have seen inordinate delays. Unless we address these and simplify policy, foreign investment will continue to suffer with attendant complications for the economy.