Finance Minister P Chidambaram has recently returned from an exhaustive overseas visit where he attempted to talk up the Indian economy, reassure existing and potential investors that India remained an attractive destination for business and placate the ratings agencies so as to avert the possibility of a further ratings downgrade.
The extent to which he was successful will be known in the coming months when his Ministry has to bear the full weight of populist politics in the run-up to the general elections.
Reading between the lines, the indications don't appear to be terribly encouraging and Chidambaram, it would seem, knows that only too well. last Friday, going by a report in Economic Times, he delivered a blunt speech at an event hosted by SEBI in Mumbai.
"Indian business," he told the gathering, "should stop looking abroad and focus on tapping huge investment opportunities within the country, especially in the infrastructure sector which offers key long-term benefits." like most of those who attempt to hard sell India, the Finance Minister emphasised the potential of India: "This is where the market is, this is where the market will shift, this is where the demand is, this is where the demand will continue to be robust over the next 20-30 years."
If we discount the endless talk of ‘potential' (that in the case of India is increasingly being prefaced by the description 'unfulfilled') and the so-called 'demographic dividend', the underlying theme of the FM's address is not likely to enthuse voters. I use 'voters' rather than 'fellow Indians' because we are at that time of the five-year cycle when the hoi-polloi are suddenly transformed into the democratically empowered.
For a start, Chidambaram has more or less conceded that India's business community, far from playing salespersons for India are so full of moans and groans that an overseas audience is unlikely to be terribly enthused about the money-making potential of India Inc. Mind you, money can still be made by dabbling in the stock market, and many of those country managers of emerging markets funds who were just 12 months ago wondering about their own futures are today flashing a broad smile.
Yes, the Sensex is hovering around the 20,000 mark once again but precious little of the world's investible surplus seems to be going into the infrastructure sector where there is a long gestation period. Maybe that is why Manmohan Singh was so keen to genuflect before China where investment decisions aren't always taken on commercial considerations.
Second, and this was the main thrust of Chidambaram's anxiety, it would seem that Indian business prefers to invest overseas. To the politician this may appear to be an act of treachery, a betrayal of the "5,000 years of civilisation" that we boast of. But wealth and investment decisions aren't draped in either patriotism or culture: it follows the logic of both returns and security.
To the entrepreneur willing to undertake risks, there are many factors at work. There are the reckless, who prefer short cuts achieved through either cronyism or plain bribery. At present, India offers such adventurous souls a very hospitable environment. No doubt even the Prime Minister is aware of this glowing facet of Indian life or else he wouldn't have alerted SEBI to persevere in taking action against insider trading-an example of the sharp practices that are increasingly becoming common to Indians.
For most businesses, however, what is most preferable, even if it is inimical to bumper profits, is a wholesome business environment. A rule-based system based on fairness and where discretion is at a discount. It is in crafting such an environment that the Government has been an abysmal failure. A reason why Indian businesses are increasingly buying into small and medium enterprises (SME) in Europe isn't necessarily because they like the cuisine or the lifestyle. Nor are they allured by the high labour costs and the general reluctance of employees to multi-task.
One reason is, of course, easy access to all the markets of the European Union. But far more compelling is the fact that a stable business environment will always ensure that the net worth of a well-managed company will always appreciate.
The rationale for investing in a tiny corner of Northern Italy isn't any different from investing in real estate in london's Mayfair, Belgravia and Kensington. They act as a hedge against the uncertainties of doing business with India.
Mr Chidambaram should know that. The Chettiars of South India have always followed market opportunities, whether they happen to be in India or Singapore or even, at one time, Burma. Today's Indian capitalist, having been liberated from the distortions of a socialistic perversion that ruled the roost from the early 1950s to 1991, have reverted to the natural instincts of the early entrepreneurs.
The FM would be wrong and more likely unsuccessful if he attempts to reverse the trend of outward investment by either diktat or patriotism. What he and his PM need to openly acknowledge is that India's overall business environment is grim and becoming grimmer. Foreigners often take their cue from local businessmen. When they see that more than half the turnover of the Tata Group comes from overseas ventures, when they see lesser businessmen of Kolkata make a mark in the mining sector in Australia and when they see the way the vibrant telecom industry was massacred by the politicians, they learn their own lessons. These are lessons that, unfortunately, even the smooth talking Chidambaram can't help them unlearn.
For some time Indians mistakenly believed that the country was pre-destined to achieve greatness. They forgot that divine blessing has to be supplemented by positive human energy. Maybe, when Indians become voters they will undertake some overdue self-correction.