A prescription for India

Although it has been celebrated as a member of the emerging world’s biggest aspirants, India is beset with many daunting problems: infrastructure, policy paralysis, sectarian unease, a smothering bureaucracy and endemic corruption. It is perhaps a testament to the zeal and capabilities of Indian businesses that they have gotten as far as they have.

Photo: Tony Burns

From November 6 to 8, the World Economic Forum will be turning its attention to solving India’s problems. A three-day meeting in Gurgaon, a flashy new suburb of Delhi, will see world and Indian leaders examine how to help India overcome its considerable problems. The forum, called “From Deliberation to Transformation will seek:

• How can the federal and state governments accelerate growth?
• How can gender equality be fostered?
• How can the burgeoning next generation of Indians be empowered as leaders?
• How can India balance economic growth with environmental protection?

To commemorate the even, Business without Borders asked four Canadian experts with particular interest in India to offer some shorthand prescriptions.

VIKRAM GANDHI

India’s gross equity inflows of $23.5BN of Foreign Direct Investment (FDI) in fiscal 2012 (ending March) represent a miniscule 1.3% of India’s 2012 GDP. While significant progress has been made in creating structural changes in the FDI process (the central government now approves many investment proposals under the 100% automatic route), more reform is needed to increase predictability and transparency around FDI. A few high level suggestions in this regard would include:

Speedier implementation: India’s federal structure transfers the onus of implementation of FDI projects to 28 different state governments (often governed by coalition parties), creating a hurdle to quick implementation, especially around large infrastructure projects. The central government should mandate due diligence investment councils formed prior to large investments, that bring together the investor, state and central government (including important constituents such as the environment ministry) and local partners, with a very specific time frame for decision making.

Tax incentives and transparency: Adjusting the tax laws to attract capital relative to competing destinations should continue. Creating uncertainty such as the recent proposals around GAAR and the Vodafone case need to be avoided.

Development of debt markets: Implementation of numerous reforms regarding the development of the debt markets (which are completely crowded out by government borrowing) need to be accelerated. In particular, to attract foreign debt capital, credit enhancement agencies should be appropriately capitalized and rated.

Dispute resolution: A clearly defined arbitration and dispute resolution mechanism at the time of investment can create a system of checks and balances with expensive disincentives and recourse mechanisms for non-performance that are pre-defined and clearly understood by both the foreign investor and local partner.

In India’s democratic structure, loud, disruptive political rhetoric by coalition and opposition parties, and strong local entrenched business interests will continue to remain permanent fixtures. However, increasing predictability and transparency around foreign investment must be a priority for India, especially in capital starved areas like infrastructure.

Vikram Gandhi is CEO of VSG Capital and senior adviser to the Canada Pension Plan Investment Board

RANA SARKAR

Closing India’s infrastructure gap is a crisis need in India and an urgent priority for both government and business. India’s continued growth and its ability to meet the aspiration of its young and fast-urbanizing population depends on it. In its most recent five-year plan, the government is earmarking US$1 trillion for infrastructure, of which 50% is set to come from the private sector. In the last five years, half a trillion has been invested already.

Recently, private financing (through PPPs) have been fuelling the infrastructure boom in India, and new financing structures are being put in place including infrastructure debt funds. In a move to support public-private partnerships, Prime Minister Manmohan Singh has earmarked US$300 billion for national highways (20,000 km to be built), airport modernization ($10 billion in investment needed), metro rail (22 new stations), special economic zones (with several new sites approved), and urban development (seven new “smart cities” to be built) to name a few.

In addition, the flag-ship $90-billion Delhi-Mumbai Industrial Corridor—considered the largest building project on the planet—is set to link India’s two biggest cities via high-speed freight rail and connect the seven new “smart cities” along the way. The government is assuring foreign investors the essential social and legal support needed to efficiently operate in an Indian economy and, despite local challenges, the project is moving forward. Whether it’s in engineering expertise, design and implementation, intelligent transport systems, green energy or a roster of leading institutional investors, Canada is well positioned to grow alongside India.

Rana Sarkar is CEO of the Canada-India Business Council

RAJ KOTHARI

India can start improving its business climate by working on its infrastructure, which if I may say so, stinks. It is particularly deficient in areas related to electricity, roads and ports. This would have innumerable benefits. Take, for example, Indian-produced food: 40% to 60% of it is wasted before it ever gets to market owing to logistical problems.

Further, there must improved governance, through transparency, accountability in business practices, government policies and implementation. Government officials should be relieved of discretionary powers and it should avoid the temptation to create retroactive legislation. Clean up the judicial process so that justice can be done on a timely basis.

Break down various hurdles for movements of goods, people and revise labour laws to minimize opportunities for corruption among public officials. Indeed, corruption to be made a severe crime and aggressive steps to contain and ultimately eliminate corruption.

Improve education through more institutions providing greater access to the common man. English and arithmetic should be compulsory subjects.

Raj Kothari is Greater Toronto Area partner for PwC as well as national practice leader for the asset management industry.

STEPHEN POLOZ

Canadian companies using Export Development Canada’s programs exported more than $2 billion in goods and services to India last year, and Canadian investments in India are growing rapidly. More than 300 Canadian companies now have operations in India. These entrepreneurs are dealing with whatever challenges there are in order to capitalize on opportunities in a wide range of sectors of the Indian economy.

Besides the attractiveness of the Indian market in its own right, companies see India as a central hub in the future of South-South trade between new markets. The Asian Development Bank predicts that South-South trade will account for more than 30 percent of global trade by 2030, within which India will be a key player. Finding a way of tapping into this staggering number will be key to future growth of Canadian companies, as more traditional markets will grow relatively modestly by comparison.

To help pave the way, India has undertaken a range of policy initiatives, such as relaxing FDI rules in retail, airlines, and broadcasting companies, developing uniform guidelines for foreign investors in the infrastructure space, and creating the National Investment Board. India is also taking steps to reduce its cost of financing, open up capital markets, and streamline tax laws and systems.

The bottom line? The ingredients are coming together to cement India’s growth story, and Canadian companies are increasingly well positioned to participate in and contribute to it.

Stephen Poloz is President and CEO, Export Development Canada