Read a hugely relevant article on how conditions in India are becoming increasingly unfavourable for FDIs.Thanks to Abheek Barman for his editorial in Economic times today.
Of late, there has been a lot of hue and cry over why the FDI investments in India are decreasing. FDIs are considered safest when it comes to financing of India's current account deficit. Because of this importance, RBI is planning to setup a pannel to study why the FDI flows are decreasing. The interesting thing is - They will not have to look far to find the reasons. - just need to look at Shastri bhavan in New delhi where most of the oil ministry offices are located!!.
To provide some background info, the FDI in india has been steadily decreasing. It was $40 billion in 2008, $35 billion in 2009, and a paltry $14 billion so far in the first 8 months of 2010 fiscal. There is certainly something going wrong?. The truth is that the confidence of foreign investors in India is decreasing.
You dont have to look beyond the deadlock in Cairn - Vedanta deal to see why this confidence has been on downside. The issue is that ONGC is blocking the deal because it says it has been paying full royalities to the government although it owns only 30% of the oil blocks in Rajastan(which forms 95% of the valuation of the Cairn India). Cairn India owns the remaining 70%.
Even i thought there is some merit in this argument. But not any more,after reading the editorial. The truth is that Cairn came to india and explored the Rajastan fields in 1990s after India promised they will not have to pay certain taxes. So cairn took all the risk initially. Later on , ONGC stepped in and acquired 30%. If you consider this fact, is Cairn India obliged to pay the royalty?.
By making life difficult for Cairn india to sell its stake to Vedanta, India is not doing any good to its reputation as a good FDI destination. The government should step in and make it happen. Its really saddening to see Bill Gammel, the CEO of a foreign company, running around the doors of the ministers seeking their approval for the sale of their own stake.
Of late, there has been a lot of hue and cry over why the FDI investments in India are decreasing. FDIs are considered safest when it comes to financing of India's current account deficit. Because of this importance, RBI is planning to setup a pannel to study why the FDI flows are decreasing. The interesting thing is - They will not have to look far to find the reasons. - just need to look at Shastri bhavan in New delhi where most of the oil ministry offices are located!!.
To provide some background info, the FDI in india has been steadily decreasing. It was $40 billion in 2008, $35 billion in 2009, and a paltry $14 billion so far in the first 8 months of 2010 fiscal. There is certainly something going wrong?. The truth is that the confidence of foreign investors in India is decreasing.
You dont have to look beyond the deadlock in Cairn - Vedanta deal to see why this confidence has been on downside. The issue is that ONGC is blocking the deal because it says it has been paying full royalities to the government although it owns only 30% of the oil blocks in Rajastan(which forms 95% of the valuation of the Cairn India). Cairn India owns the remaining 70%.
Even i thought there is some merit in this argument. But not any more,after reading the editorial. The truth is that Cairn came to india and explored the Rajastan fields in 1990s after India promised they will not have to pay certain taxes. So cairn took all the risk initially. Later on , ONGC stepped in and acquired 30%. If you consider this fact, is Cairn India obliged to pay the royalty?.
By making life difficult for Cairn india to sell its stake to Vedanta, India is not doing any good to its reputation as a good FDI destination. The government should step in and make it happen. Its really saddening to see Bill Gammel, the CEO of a foreign company, running around the doors of the ministers seeking their approval for the sale of their own stake.
The world's perception on India as a corrupt country is also a major reason for decrease of FDI.The shrewd business watchdogs for the potential FDI must have realized about it much earlier.Only thing is that we,the public came to know about the massive nature of corruption through recent CWG, 2G,S band scams. Who wants to do business in a country where one need to pay bribe for each and every transactions. Sorry to realize that we are living in an era when corruption is at its peak in India.
ReplyDeletewell said deepak. Yes, corruption is another chief reason. Infact this was one of the two important concerns(other being inflation) raised by other countries about India at the World Economic Forum held at Davos, Switzerland few days back.
ReplyDeleteAnother concern is infrastructure. Minister P.C chidambaram admitted he was told that other countries felt that they could not compare China's infrastructure with India's!.
(Indirectly a reason for this could be corruption and red tapism by govt babus).