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.