The right moves to attract investors

Prime Minister Narendra Modi travels internationally, meeting political and corporate heads, to invite them to invest in India and create jobs. The country needs at least 12 million jobs a year to avoid social unrest; to put this in perspective, the world’s largest economy added 142,000 jobs in October, and India needs 90 times as many.

When he returns home, he encounters a different India - filled with avoidable social tensions, flouting of the rule of law and pettiness; not attributes that would endear investors. If India is really serious about attracting investors, some important issues have to be addressed to change the status-quo. For instance, there needs to be more protection to investors.

The first step towards protecting investors is improving the ease of doing business. The process of allotment of roads and of coal is now transparent and smooth. But this is not the situation in the construction industry. In general, the government must ensure that discretionary powers are reduced. Stability in laws, particularly taxation laws, is required - witness the belated willingness of the Finance Minister to settle the dispute with Vodafone over capital gains liability sought to be collected from the buyer, instead of the seller.

Unblock arteries

The government must also find ways to speed up the legal process by improving the functioning of the justice system. There are 4.5 million cases pending in our 24 High Courts. A simple solution is to work with the judiciary and restrict the number of adjournments granted to 1 or 2 per side, from now on, for all cases, pending and future.

Likewise, the tight hold the Government has over the financial and banking system must be loosened. There are 27 banks in India, controlling 70 per cent of deposits, in which the Government owns a majority.

Often, these banks lend under direction from powers that be, leading to non-performing assets. So, for the safety of the financial system, the Government must pare down the banks it holds majority stake in.

It took 14 months for Government to appoint a new head for Bank of Baroda, one of the largest. During this vacuum, the scandal pertaining to transfer of over $1 billion abroad, without due diligence, occurred. Why?

We must make our institutions, such as CBI, truly independent. In short, we need to unblock our bureaucratic arteries, our judicial arteries and our commercial arteries in order to attract people to invest and do business in India.

Globally, there is an overcapacity in many industries, largely because Chinese demand has dropped, and profitability is challenged. In the first nine months, credit rating agencies have downgraded 297 companies (the most since 2009) whilst upgrading 172. A third of these downgrades are oil & gas firms, as prices dropped.

Last week, the Sensex added 135 points to close at 27,241.6. Encouraging results from Infosys did not enthuse investors, who looked at tepid guidance.

The US markets may witness a correction on weak corporate earnings for the September quarter. India remains an attractive market, but the Government has to decide which image of India it wishes to portray, to attract investment and create a future for the young citizens seeking jobs.

The writer is India Head, Euromoney Conferences

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