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5th Anniversary Issue 2011-2012 (in USD billion)
2012-2013 (in USD billion)
% Decline
India
46.5
36.8
21.0
China
116
111.7
3.7
Table 1: Annual FDI Inflows in 2012-13 as compared to previous year for India & China
percentages. In fact, not all countries faced such devastating results as India did. Our neighboring country, China, managed to curb the fall in its FDI inflow to just 3.7%. But the same was not the case with FIIs. FII inflows increased significantly in 2012, as is given in Table 2. The CAD widened by more than 12% for the year 2012-13 as compared to previous year, as per the Table 2 above. This rise in CAD required more capital inflows to fulfill the requirements but unfortunately this couldn’t happen. Consequently, rupee is seeing a hit since the last one year. India cannot attribute the weakening currency and FDI drop to external factors only. It is high time we look into the internal weaknesses so as to better manage them. If other countries could manage to control their FDI and capital inflows, then what is going wrong with India? FDI Talking in terms of marketing, Indian government has to make the country highly sellable as an FDI destination. India as a country has to understand the needs of these companies so as to provide what they look for. Broadly speaking, every company has two major concerns in everything they do. • How to increase revenues? • How to reduce expenses? Corporate houses strive hard to achieve both of these in order to attain and sustain competitive advantage. The first concern on increasing revenues is related to the market size. The second concern to reduce cost is about efficiency in the system. Both of these factors are highly exogenous for the company. The company cannot totally control these two factors on their own. The role that Indian government plays highly influences the outcome with regards to these two factors. Revenues for a company can be increased by a larger market size
which can be achieved if the government can make people earn higher income. Costs incurred in the processes by these companies can be brought down if the government provides better facilities to these companies. But these reasons are given at very higher levels. It is needed to dig deeper in order to better understand the shortcomings. The government of India is certainly missing many aspects which need to be taken care of. Some of them have been captured below. 1.Taxation norms: Retrospective tax policy is something which came up recently. This is for the immediate gains sought after by the government. India came up with the decision to tax Vodafone for a transaction of over INR 11,000 crore it carried out in the past. This move was highly criticized by companies as well as other countries. This posed a question of reliability on the part of our government. In order to attract more FDI, India has to position itself as a reliable country, not as one with frequently changing tax norms. 2. Government Policies: The government has started coming up with other retrospective policies and norms. For one, Punjab and Haryana High Court came out with a judgment which requires Maruti Suzuki to pay an additional amount of INR 1200 crore as enhanced land acquisition cost. The land was acquired in 2002 whereas the order came almost 10 years later. If the government will keep on changing the norms retrospectively, then foreign companies would start feeling insecure for even those transactions that occurred in the past. This might lead to withdrawal of FDI which would cause monetary loss as well as loss to society in terms of increased unemployment etc. 3. Better Infrastructure:
2011-2012 (in USD billion)
2012-2013 (in USD billion)
% Increase
FII
8.5
25.5
200
CAD
78.2
87.8
12.3
Table 2: Annual FII Inflows and CAD in 2012-13 as compared to previous year
28
Anniversary issue
August 2013