NRIs do not invest in India because of bureaucratic hurdles

'''NRIs Do Not Invest In India Because Of Bureaucratic Hurdles''

The combined wealth of NRIs is larger than the country's GDP. Besides, all us have heard of all the brand new billionaires that dot the infotech industry abroad. The Indian diaspora have quite a lot of moolah between them; so, why aren't they funnelling at least some of it to their mother country? G.P. Hinduja, President of the Hinduja Group, tells us why in a free-wheeling interview with BT's Alam Srinivas.

Q. Why is there a trend for successful NRIs to invest in portfolio investments and FCNRs, but not in manufacturing units in India? Is that because the returns on the former are faster and generally higher than the latter?

A. NRIs generally do not invest in manufacturing units in India because of bureaucratic hurdles and the lack of transparency and accountability at all levels. Besides, they do not have the same infrastructure and network that local industrialists enjoy. In any case, the infrastructure in India is poor despite all the promises made by the Government. NRIs are not accustomed to such bottlenecks and become frustrated when they try to invest in the manufacturing sector. Therefore, they prefer the portfolio and FCNR route, which provides transparency, as well as an assured rate of return.

Nevertheless, the Hinduja Group was the first to invest on a large scale in the manufacturing sector by acquiring Ashok Leyland and Ennore Foundries, in 1987, from the Rover Group of UK. We had the vision to realise that India would become a low-cost optimal-quality manufacturing hub. We are still increasing our investments and expanding operations in the country. We were the first private-sector company to set up operations in the lubricants sector with the start of Gulf Oil's operations in India. Today, despite blocks like marketing restrictions, Gulf Oil has increased its marketshare and has started exporting its products to Bangladesh. We have also invested in the TMT (Technology, Media & Telecom) sector in a big way.

Q. Does this mindset show that NRIs are impatient with delays as they come from countries where decisions are faster and policies consistent?

A. Yes, NRIs become impatient. Even transnationals and other foreign investors become disillusioned once they actually decide to invest in India. Every country has its investment and business procedures, but in India, even if you follow the rules, the result may not be forthcoming. Our bureaucracy must stop acting as if they are doing a favour to foreign investors when they expedite their investment in the country. India is operating in a globally-competitive market and must bend over backwards to attract investments, not impose delays and obstacles to frighten investors away to more friendly markets. After all China is competing for the same resources and soon it will be admitted to WTO, so the pressure to attract good investors--whether NRIs or others--will only increase.

Q. Does the Indian bureaucracy and sloppy political climate also play a role in acting as bottlenecks to NRI investments in the manufacturing sectors?

A. Even though India is the biggest democracy in the world, its present structure of governance is not effective in making the bureaucracy accountable and transparent. Policies are made at various levels, but no one ensures their implementation. The proposal of providing a single-window clearance has also not made much headway.

Our investment in the Vizag Power project is a classic example. We signed the MOU in 1994. In any other country, the power station would have been commissioned. But here we are still at the paper stage. Even though we have obtained all the required approvals, we have not yet reached financial closure. The irony is that all the finances have been tied up, but the final clearance is due from the state. And this is supposed to be a "a fast-track project"! We have invested a lot of money in this project and are still committed to it. Any other investor would have walked away. In the insurance and telecom sectors, too, there are problems. Here too, the government should treat NRIs, if not preferentially, at least on an equal footing with other Indians.

Q. The NRI community seems to be going through a constant contradiction of sorts -- they claim to have strong emotional links with India but do not want to commit too much money; they keep talking of how they want to help the country but remain distant when it comes to taking business decisions. Why?

A. This is completely wrong. There is no contradiction in the minds of NRIs. On the other hand, every time NRIs want to come and invest, they get bogged down by delays, hurdles, and a general lack of decision. Despite this, they continue to make attempts to invest in India because of two reasons--their strong emotional ties with their motherland, and their knowledge of the country and its culture. This is evident from their response to the Resurgent Bond Issue, which raised over $4 billion. But the Indian Government must motivate NRIs to invest not only in "hard-cash" options like bonds, but also in fundamental business. After all the combined income of the NRI community is greater than India's GDP.

Q. How has a country like China managed to woo investments in the manufacturing sector from overseas residents through Hong Kong and Taiwan? Are expat Chinese different in composition and mindset than expat Indians?

A. The reason why everybody goes to China is that the Chinese make it very easy. Approvals are given in a matter of days. Even after allowing for the highly-centralised communist system in China and the democratic set up in India, there is no reason for protracted delays in India, which often run into years. In India, we need about 50 clearances to get a project going, as against the single-window system in China. In China, the infrastructure is created ahead of requirement. In India, we wake up and act only when there is a huge scarcity and our house is on fire.

When our group decided to invest in China for setting up a Gulf lube plant, we were welcomed from the first day. The Chinese Government provided assistance at every stage, making our early days very comfortable. There was no delay and no going back. Everything fell into place and our operations commenced in no time. The policy decision in China is accompanied by a regulatory framework that is already in place to encourage investment.

Click here to read further

Issue Contents Write to us Subscriptions Syndication