India has long been viewed as a value investor's dream: rapid growth, 1.2 billion people pining for a taste of globalisation, and underdeveloped industries ripe for turnarounds. So it surprised few when the genre's guru, Warren Buffett, placed a bet on the world's ninth-biggest economy. What did come as a surprise was last week's decision by the billionaire's Berkshire Hathaway to give up on India's insurance market after just two years. Adding to the drama, the withdrawal came the same week India unveiled plans to open the economy as never before to FDI. Buffett isn't alone. Walmart, ArcelorMittal and Posco are pulling back on investments that they had announced with great fanfare. What's scaring foreigners away? A rampant political dysfunction that has stopped India's progress cold. Headwinds from New Delhi are contributing to the slowest growth rates in a decade, a record current account deficit and a 7.9% plunge in the rupee this year. Foreign-direct investment slid about 21% last fiscal. The problem is an Indian government that won't get out of its own way. The long debate over foreign-investment limits says it all. In September 2012, Manmohan Singh's governmentpassed a law allowing big retailers to open stores directly, yet no one has. Reasons are legion: too many prerequisites; constraints on whom goods can be purchased from; a raft of regulations limiting franchise models and factory construction; and the hairpulling need to negotiate separately with each of the states.
Big Fizzle India has fallen into a self-destructive pattern of relenting on big issues, then killing would-be investors with the details. Take the experience of Ikea. Not content with the Swedish icon investing $2 billion, the government played hardball. It tried to bar Ikea from selling food in stores; Ikea stood its ground. But the damage was done. Executives fully expect to have to navigate India's bad infrastructure, rigid and often unskilled labour markets, red tape and official corruption. They're less keen on tripping over the fine print of vaguely written laws and local power brokers with agendas at odds with New Delhi. Headlinemaking disputes involving household names like Ikea, Walmart and Berkshire don't help India's image. Worse, the uncertainty is breeding a huge trust deficit. On July 17, India moved to open important sectors such as defence, power and telecommunications to foreign investment. It's heralded as the nation's "big bang." Big fizzle is more like it, as big inflows are likely to continue eluding India. Any major foreign investor cannot ignore the experience of Vodafone, which is still wondering if it will take a multibillion-dollar loss on a deal, thanks to tax-policy changes. It's time for the government to stop squandering India's potential. The lack of transparency and reliability makes it virtually impossible to consider long-term investments. What should India do? Pass clear and strong investment laws that will survive the change of government and offer a code of conduct for state leaders. India must strengthen the rule of law as it applies to foreigners so they'll trust their money is safe. Finally, India must think long-term. Today's motivation for inviting more foreign money is to narrow the current-account deficit. The goal should be to raise competitiveness, gain fresh knowledge and create better-paying jobs for the future. India is proving that size doesn't guarantee its inevitable rise. Only true economic reform, political openness and more proactive leadership will do that — and get the Buffetts of the world to come to India and stay.
Bloomberg
William Pesek
No comments:
Post a Comment