With the value of rupee eroding, India faces a stiff challenge in continuing with its good work of providing financial assistance to least developed countries across the globe and building strategic ties
India’s financial health is now a global concern. While India is leading in green-field investments in the least developed countries, it is losing out on many other areas including on foreign direct investment, ability to cash on value chains and unstoppable inflation. This is what the World Investment Report 2013 of United Nations Conference of Trade and Development states.
The report, sub-titled ‘Global Value Chains: Investment and Trade for Development’, is subtly critical of Global Value Chains or global trans-national corporation factories, located largely in Asia. “Jobs created by GVCs vary in quality. Workers can face low pay, tough working conditions and insecurity”, the report says. In such a scenario, in 2012, India emerged as an island as its companies invested in geographically and sectorally diversified lDCs and were responsible for 20 per cent of the total value of such investments. Mozambique was the largest recipient of Indian green-field investment (45 per cent), Bangladesh (37 per cent) and Madagascar (eight per cent).
India invested $4,383 million in 2012 in lDCs against $4,219 million in the previous year. Investment by China during the period dipped to $918 million from $9,955 million. Except South Korea, which invested $996 million, investment by other Asian countries declined. Other large investing countries were the US, Japan and the United Kingdom, South Korea and China.
Eastern and southern Africa also benefited from Indian investments. The projects, ranging from large-scale investments in extractive and heavy industries extended to smaller ones in pharmaceuticals and healthcare. Indian projects were spread over various industries, including automotives, informational technology, textiles and tyre.
In pharmaceuticals, Indian companies invested in Uganda, Tanzania and Rwanda. Each investment was worth $5 million. India also leads in healthcare investments. Over a dozen of the 25 health care projects in lDCs originated in India. Overall, India continues to remain the dominant recipient of FDI inflows to South Asia. Despite a drop of 29 per cent it received $26 billion followed by Bangladesh at $1 billion.
Iran, despite economic sanctions from the US and the European Union, recorded a historic 17 per cent increase in FDI to $5 billion with more than 400 foreign companies now directly investing there. According to Deputy Economy Minister and the Head of Organisation for Investment, Economic and Technical Assistance of Iran, Behrooz Alishri, Iran has signed MoU valued at $7 billion.
India is also investing in Iran for developing Chabahar port for linking it to land-locked Afghanistan. A significant aspect has been the rise of United Arab Emirates as an investor. The companies from UAE are active players in the region in mergers and acquisition. The Jet-Etihad deal is only an indicator, to many more in the pipeline. Some UAE countries, like Abu Dhabi, have assured India of larger investments for every such deal.
Indian economy which experienced its slowest growth in 2012 is not improving. Inflation and falling growth have affected investor confidence. But the study contends that the country’s FDI prospects would improve. Inflows to the services sector are likely to grow because of efforts to open up key economic areas such as retailing.
Flows to manufacturing are expected to increase as a number of countries, including Japan and South Korea establish country and industry-specific industrial zones in the Delhi-Mumbai corridor. Korea is setting special zone for its companies in Rajasthan. These bilateral efforts may result in an increase in FDI.
Of late, Indian conglomerates have pulled back from large and outbound mergers and acquisitions owing largely to financial constraints. As a result, outflows from India decreased to $8.6 billion and the total value of cross-border M&As have dropped by nearly three-fifths in 2012 to about $2.65 billion.
West Asia may not remain the job market for Indians, as it is indigenising to meet the demands of its growing youth population. Indigenisation started with Saudi Arabia which has taken steps to augment Saudi employment in private sector. The policy of ‘Saudisation’ with a new law called ‘Nitaqat’ limits the number of foreign workers that companies can hire. In the near future, an exodus of Indian workers from West Asia could cause problem for the domestic job market and affect Indian economy in adverse ways as foreign exchange remittances would whittle adding to further balance of payment problems.
The world economy would remain in turmoil. Western economies, the report says, are having less and less capacity either to absorb investment or invest elsewhere. In this transitional phase, India has many opportunities but also faces myriad problems — erosion of value worth of company reserves amid a rupee that’s fast losing sheen. Would India be able to maintain the lead that it has taken in some areas including creating friends among the least developed countriesIJ