Lakshmi Mittal was at Bhatinda in Punjab for the opening of a new refinery that one of his companies has built in collaboration with public sector firm HPCL. It is good to be reminded that new industrial projects are getting commissioned in such times. But Mittal also used the occasion to send out a clear warning about why India is suffering as an investment decision. The prime minister was also there; he dedicated the Bhatinda refinery to the nation, as government spin doctors like to describe such activities.
The steel magnate said that India was too important to be ignored, but added that his main attention is now on countries such as Canada, Liberia and Brazil. Part of the reason is surely because three large steel projects proposed by Arcelor Mittal have made little headway thanks to policy tangles. Other business leaders have also been exasperated with the obstacles put in the way of new projects, at a time when the economy desperately needs higher corporate investments.
Many corporate groups have stepped up their overseas commitments. In a hard-hitting speech he gave to the New Delhi policy elite last month, former International Monetary Fund chief economist Raghuram Rajan said, “Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.”
To be sure, some of these overseas investments are strategic in nature, as Indian companies seek new technologies, access to new markets, or simply want to diversify risks away from a single market. Think of the investments made by Reliance Industries in US shale gas or the acquisition of Jaguar Land Rover by Tata Motors. But there is also no doubt that Indian industry is keen to allocate capital abroad, despite higher returns on capital in India, because of the huge problems in getting land, environmental clearances and stable power supply.
The steel magnate said that India was too important to be ignored, but added that his main attention is now on countries such as Canada, Liberia and Brazil. Part of the reason is surely because three large steel projects proposed by Arcelor Mittal have made little headway thanks to policy tangles. Other business leaders have also been exasperated with the obstacles put in the way of new projects, at a time when the economy desperately needs higher corporate investments.
Many corporate groups have stepped up their overseas commitments. In a hard-hitting speech he gave to the New Delhi policy elite last month, former International Monetary Fund chief economist Raghuram Rajan said, “Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.”
To be sure, some of these overseas investments are strategic in nature, as Indian companies seek new technologies, access to new markets, or simply want to diversify risks away from a single market. Think of the investments made by Reliance Industries in US shale gas or the acquisition of Jaguar Land Rover by Tata Motors. But there is also no doubt that Indian industry is keen to allocate capital abroad, despite higher returns on capital in India, because of the huge problems in getting land, environmental clearances and stable power supply.
These problems have been festering for a long time. What is needed is a stable policy regime, run by rules rather than discretion. The proposed law on land acquisition is a step in the right direction, despite the disagreement on the prices that will have to be paid. Another change should giving greater freedom to state governments to give environmental clearances for new projects.
The situation is still not out of control. Outbound foreign direct investment has been growing, but we cannot call it capital flight. But the risks of such an eventuality should be recognized.
In the 1970s, Aditya Birla got fed up with the suffocating controls in India and decided to invest abroad, especially in South East Asia. India does not need a rerun on that, multiplied several times over.
