eCharcha.Com   Support eCharcha.Com. Click on sponsor ad to shop online!

Advertise Here

Go Back   eCharcha.Com > Current Affairs > Economy

Notices

Economy Fiscally fit?

Reply
 
Thread Tools Display Modes
  #1  
Old October 28th, 2002, 04:37 PM
videsee's Avatar
videsee videsee is offline
Simple Indian Muslim
 
Join Date: May 2001
Posts: 4,404
videsee is just really nicevidesee is just really nicevidesee is just really nicevidesee is just really nicevidesee is just really nice
Why Investors Stay Away From India

FINANCIAL EXPRESS, SUNDAY, OCTOBER 27, 2002
Only a comprehensive risk cover can ensure value for their money

Chidambaram
Imagine you are a foreigner, say, French or German. Imagine you have been given $100 million to invest abroad. Why would you choose India?
India is one among a hundred destinations where a foreign company can make an investment. The investor will naturally weigh the opportunities and the risks. You may have read why India is a land of opportunities for a foreign investor. Now consider the downside, the risks.

The most obvious risk is the political risk. Most foreign investors are still wary of India. They accept that India is a democracy, that it will always remain so and that, by and large, the rule of law prevails in the country. What they cannot decipher is the political system in the country. From their point of view, there are too many political parties and every one of them appears only too willing to change its colours. A foreign investor does not care whether a country follows a presidential system or a parliamentary system. He would be happy if there were only two, or may be three; political parties and if the party voted to power will govern for a period of four or five years.

What sends shivers down his spine is the shutdown of Parliament for several days, the no-confidence motions, the threat of destabilisation and the fall of governments in rapid succession (1996, 1998, 1999). When the Prime Minister of India tells an audience in the US that there is no threat to his position, far from being reassured, the foreign investor will report to his Board that he wonders why the Prime Minister should worry about his tenure when he is thousands of miles away from home. He will, perhaps, discreetly tap a source in the State Department to find out if a change of government is imminent in India.

The next risk is the security risk. Investors — and the investor may be a company with nobody to be kicked or a soul to be damned, yet every investor is made up of human beings — will not venture into territory where the lives of their personnel and their families are at risk. Travel advisories have now become very common. CNN and BBC World bring the happenings in the world’s trouble sports into the living rooms of investors every day. If there is a war (as in Kargil) new investment will dry up for many months, even years. If there are riots (as in Gujarat) no one will go anywhere near that state. Not only Gujarat, but also Goa and Maharashtra will be affected. It is the chaotic conditions in Bihar and Uttar Pradesh, the private armies, the indiscriminate killings and the bandhs that frighten away investors. Investors also like safe cities, safe neighbourhoods and safe schools for the families to live, work and study.

The third risk is the policy risk. Investors will live with any policy. They will factor in that policy and re-work their numbers. But there must be a policy, and that policy must be stable. Especially, investors like stable taxation policies. There have been too many policy gyrations in India. The finance ministry has been the worst offender. It promised an export-friendly environment and then taxed export profits. It re-introduced the tax on dividends when it was generally believed that the debate had ended on the subject. Among other ministries that have been guilty of policy muddles are the ministries of power, petroleum, civil aviation, telecommunication and chemicals and fertilisers. If foreign investors have quit the power, telecommunication and pharmaceutical sectors in India, we have only ourselves to blame.

Tax administration adds to policy confusion. I know of cases where double taxation avoidance agreements have been summarily brushed aside, tax jurisdictions have been arbitrarily changed, and repatriation of salaries and other earnings subjected to unnecessary harassment. Why would any foreign investor want to come and live and work in India, if the policy maker and the taxman do not treat him with the courtesy and consideration that he deserves?

Then there is the commercial risk of doing business. Some businesses will succeed, others will fail, but this is a universal phenomenon and not peculiar to India.

To this list must be added the legal risk. India’s pride is the legal system, the common law and British (or Commonwealth) jurisprudence. But the system contains many risks for the investor. At the top of this column is legislative risk.

What if Parliament or a state legislature passed a law, which upsets the investor’s assumptions and calculations? Such laws were made in India, for example in 1977, and IBM and Coca Cola were virtually thrown out of the country. There is a judicial risk — how will the courts apply and interpret the laws? Suppose you are an investor and you feel secure with an agreement that requires disputes to be resolved through international arbitration at London. How will you react if a court told you that the arbitration agreement has been tossed out of the window by a subsequent law and that your dispute will now be resolved by a tribunal in India with no qualified judge on the tribunal?

Recently a new kind of legal risk has emerged and I shall call this ‘‘regulatory risk’’. Many regulatory bodies have been established to ‘‘regulate’’ the players in different sectors. Sebi for the capital market, Trai and TDSAT for the telecom sector, CERC and SERCs for the power sector, TAMP for ports, Irda for insurance and so on. These are supposed to be ‘‘expert’’ bodies. Many decisions have been handed down in recent months, and some of them are quite bizarre. There is little evidence of ‘‘expertise’’. The fault lies in packing these regulatory bodies with retired judges and retired civil servants. Indian governments have not quite come to terms with independent regulation. Governments simply do not want to let go of their control. There is a long way to go before these regulatory bodies can be regarded as truly independent and truly expert bodies, but until then ‘‘regulatory risk’’ has to be factored in as a potential risk.

It is, therefore, not surprising that foreign direct investment in India is languishing between $2 billion and $3 billion a year. With so many risks around, I wonder why some enterprising insurer has not come up with an offer of a comprehensive investors’ insurance cover.

(The author is former Union finance minister)

http://www.financialexpress.com/fe_f...ntent_id=20540
__________________
"Keep away from small people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great."

Mark Twain
Reply With Quote
  #2  
Old October 28th, 2002, 05:37 PM
echarcha's Avatar
echarcha echarcha is offline
Sutradhar {admin}
 
Join Date: Jul 2000
Location: CA, USA
Posts: 45,300
echarcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond reputeecharcha has a reputation beyond repute
This is so true

Our policies and political instability combined with no uniform foriegn policy especially towards foreign investments would scare any serious business entity.
__________________
eCharcha.com
-Loud and Proud Desi Opinions
Reply With Quote
Reply

Bookmarks


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump

Similar Threads
Thread Thread Starter Forum Replies Last Post
When employees stay back late, should the manager stay too? echarcha Jobs 6 December 20th, 2009 01:44 PM
Dot-con job: How InfoSpace took its investors for a ride echarcha Computing 0 April 26th, 2005 09:24 PM
Investors betting that Iraq war may be postponed. Big-G Taaza Khabar - Current news 10 March 14th, 2003 06:12 AM
India should stay away from the looming war -- Amberish K Diwanji GpeL Defense 0 November 27th, 2001 10:45 AM
Investors discount IT fears - IT boom in india will sustain and continue growth ! Indian Economy 0 February 20th, 2001 08:54 PM


All times are GMT -7. The time now is 01:58 PM.


Powered by vBulletin® Version 3.7.2
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
Site Copyright © eCharcha.Com 2000-2012.