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Modi is "squandering" his strong mandate, in four months multinationals' honeymoon is "nearing its end"
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| Vodafone's Marten Pieters |
In a commentary, "Modi allure dims for multinationals awaiting ‘big bang’ in India", the world's one of most influential business papers, the Financial Times (FT), has warned Narendra Modi that "honeymoon is nearing its end for the growing ranks of investors disappointed by the dearth of radical economic reforms." Authored by Victor Mallet and James Crabtree, in a strong critique of Modi's economic policies, FT has said, the Indian Prime Minister's "first four months in office" suggest that he is "squandering his strong mandate".
It adds, "Indian and foreign business leaders backed Modi in May’s election because he offered a change from a decade of corruption and indecision." But now they feel "frustrated by his government’s failure to rescind retrospective legislation and rulings that have left multinationals confronted with surprise tax bills running into billions of dollars."
Quoting some of the senior executives, FT says, "Marten Pieters, chief executive of Vodafone India, spared neither Modi’s BJP government nor its Congress predecessor when he last week pronounced the country’s vital telecommunications sector 'simply a mess'." Pieters had opined how Vodafone made big investments in China.
“Last year China invested $50bn in its networks. We did five [$5bn],” he told a conference in New Delhi organised by The Economist. "Vodafone had sought an advance tax ruling nine months ago so that it could raise equity to bid for spectrum in an auction next February without another tax dispute, but had yet to hear the outcome", FT said, adding, last week Pieters "got the news that the officer dealing with the file has retired.”
In fact, top executives in India want India go in for major economic reforms. FT quotes Gurcharan Das, former head of Procter & Gamble in India, to say that “if he wants to make India a manufacturing hub, we will need the big bang reforms.” But "Modi has so far taken none of the revolutionary steps business had hoped for, such as full privatisation of state companies or liberalisation of labour laws", points out FT, adding, "He never promised those, in any case, and Modi does score high marks for re-energising the bureaucracy."
In the meantime, underlines FT, "Modi’s government has backed out of a world trade accord sealed by its predecessor that was meant to trim red tape and reduce customs burdens. It has also failed to implement an increase in the price of natural gas paid to producers." Suggesting this is discouraging top players in the field, it quotes Sashi Mukundan, regional president of British Petroleum to say, “We can’t make a [planned] $4bn investment without knowing what’s going to be the policy for gas pricing. China has implemented it. India is still waiting.”
"One problem identified by investors is that cabinet ministers lack experience and technocratic skills to run a $1.8tn economy, while decision-making is concentrated in the prime minister’s office", FT says. It quotes Banmali Agrawala, head of General Electric in south Asia to say, “It looks like we are pinning a lot of hopes on just one individual,” with others agreeing that "there’s nobody there who has any experience running anything. The problem is that the BJP does not have depth of administration.”
Recalling that economists at Nomura forecast foreign direct investment into India will rise to $30bn this financial year from $22bn last year, FT believes, "But that will flow mostly into sectors such as pharmaceuticals and e-commerce, rather than power and infrastructure where India most needs capital. Oil and gas groups are deterred by the financial disputes in which successful explorers such as Cairn India have become embroiled. Nor are global power companies keen to enter the dysfunctional energy market, despite a huge projected electricity shortfall."
In fact, FT suggests, multinationals believe that mining is going to be a major grey area where they will not be interested in investing any more. Thus, "Balfour Beatty, Britain’s largest construction company by sales, quietly pulled out of India last year, having decided that it could not make money in a country whose previous government pledged to spend $1tn on new infrastructure by 2017."
Insisting that "mining is another no-go area", the paper says, "Global groups such as Rio Tinto have long wanted the chance to dig up some of India’s vast coal reserves. But amid the recent 'Coalgate' scandal over the allocation of mining rights, foreign investors would be reluctant to enter even if Modi opened the door."
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