Attracting Foreign Direct Investment to india
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Discussion of what is attracting FDI to India today vs. the sorts of things that should ideally attract them. Also of whether FDI will address the real problems in the economy. With special attention to the fact that Covid has changed investment psychology, both among executives and among investors.
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Attracting Foreign Direct Investment to india
- 1. Attracting FDI to India: What policies & actions are needed? Presentation to the Global Financial & Investment Leadership Summit 2020 7 October 2020 Prabhu Guptara NXD; Board Consultant; Publisher: Pippa Rann Books & Media
- 2. Gloom? What Gloom?! • India has received $20 billion in FDI since the Covid pandemic started! • Some recent investors in India (in no particular order): • Google • Facebook • Mubadala • Canadian Pension Plan Investment Board • Temasek • GIC • Morgan Stanley • Société Générale • Brookfield • Ontario Municipal Pension Fund • Actis
- 3. But *why* are foreigners investing in India?! • Foreign investors calculate that the assets they are buying “could produce annual returns nearing double digits” - The Economist, 3 October 2020 • Naturally, whether investors actually get such returns depends on: • the performance of those assets in these difficult times and • the performance of the Rupee in international markets
- 4. FDI comes in because • investors weigh up comparative risks versus returns across the globe; and then decide • what proportion of their total portfolio is to be invested where. While we may seem to be doing very well in the FDI stakes, the actual picture is indicated by my next slide:
- 5. FDI inflows: top 10 host economies, 2018 & 2019* (Billions of US dollars) - UNCTAD
- 6. Most such investments are “portfolio investments” – unkindly described as “hot money”
- 7. Will such investments, however large, solve: • the systemic problems which plague our financial system? • the systemic problems which plague our economy? • result in new and productive projects? • reduce unemployment?
- 8. Post-Covid FDInvestors are looking for locations with: • Rule of Law • Personal / Corporate Security • Monetary Policy • Tax Policy • Asset Title/ Ownership • Government Transparency • Soft & Hard Infrastructure • Character-based Workforce (NOT “skill-based”!!!) • Fair and equitable (merit-based) access to capital • Ease of Doing Business • Investment Liquidity
- 9. The government may at best pay lip service to the rest, but focuses its attention on the bits in white, so you can work out for yourself how persuasive that appears: • Rule of Law • Personal / Corporate Security • Monetary Policy • Tax Policy • Asset Title/ Ownership • Government Transparency • Soft & Hard Infrastructure • Character-based Workforce (NOT “skill-based”!!!) • Fair and equitable (merit-based) access to capital • Ease of Doing Business • Investment Liquidity
- 10. For a solid basis to growth, we need to move away from mantras, tamashas & prestige projects • Sort out primary and secondary education • Build Character, not only Skills • Provide a National System for Basic Health • Moving away from incentivising and supporting private transport, to incentivising and supporting a national system of Public Transport reaching our remotest villages
- 11. Concluding statement • We are well on the way towards suspending the current Constitution and instituting Ram Rajya • That can produce growth and attract the right sort of FDI • But the only basis for solid growth is mutual co-operation in the country between different religions, castes, classes, etc. • Not the censorship, fudging of facts, terrorisation of the population, and deliberate generation of fear that we see today.
- 12. Attracting FDI to India: What policies & actions are needed? Presentation to the Global Financial & Investment Leadership Summit 2020 7 October 2020 Prabhu Guptara NXD; Board Consultant; Publisher: Pippa Rann Books & Media
Editor's Notes
- Most of the deals were of course agreed before Covid started, and the only question was, would the potential investors proceed with the investments or rethink them. Probably many did. Luckily for us, these did not.
- In other words, it is short-term money, good for owners who either want to sell out or get additional money for some reason. But this kind of investment isn’t long-term, and therefore isn’t going to build up the real economy on the ground. Assets are bought and sold like cards are bought and sold in a game of monopoly.
- In August, Prime Minister Modi announced $1.46 trillion in infrastructure projects to support our economy. He also allocated $2 billion towards upgrading our overwhelmed health system. That followed a $22 billion economic stimulus package announced in March. There’s been a debate about how much of this is new money and whether India ought to do more: India's pandemic assistance has amounted to only about 1% of its GDP, as Nobel laureate Abhijit Banerjee has said, compared with the U.S.'s package in March of about 10% of its GDP. But, whether new or old, and despite the fact that it is only 1%, it has certainly prevented our economy from going through the floor. Though the economy still contracted an unprecedented 24% in the April-June quarter. A further downturn has been forecast for the quarter year just ended: July-September. Let’s see what the picture is when the figures come in.