Open
Forum
New
Delhi, 15 September 2021
Wooing Pvt Investment
TO AID BALANCED
GROWTH?
By Dhurjati Mukherjee
Prime Minister Modi has been urging India to
plug into the booming opportunities for ‘Made in India’ products, even as he tried
to lure foreign investors with the promise of greater reforms, quicker
approvals, low taxes and a benign regulatory environment. All
this sounds quite attractive though there is need to examine to what extent we
can extend our optimism. Moreover, the recently launched four-year road map for
Rs 6 lakh crore asset monetisation plan to attract the private sector has
generated a lot of debate and discussion among industry leaders and economists
with both arguing for and against with their respective propositions.
However, the government’s decision last month
to scrap the retrospective element in tax provision, introduced by UPA in 2012,
sticking to the principle of taxing indirect transfers of capital assets
like shares held in tax-haven based companies that derive their value from an
underlying Indian entity, may be welcome.
Modi optimistically stated his government had
rectified mistakes by doing away with retrospective taxation and hoped that
this would build trust between government and industry. But he glossed over the
fact that the principle of taxing indirect capital asset transfers,
irrespective of the residence of the entity, had been rejected by the Supreme Court.
However, the government has made no effort to scrap the 55-year retrospective
elements in tax laws amendment in Section 132 of the IT Act.
Seven years after struggling to revive
growth, the Modi government feels that there is likely to be an
investment boom led by private capital. Some experts have pointed out that
forward looking small entrepreneurs no longer find it necessary to stay small
and run inefficient businesses just to retain excise benefits or stay out of
the taxman’s radar. The post demonetisation, post-GST, and post-Covid economy
is witnessing the rise of a new middle class sector among Indian companies,
which want to grow and not remain in midgets forever.
Though this may be partly true, the lower
middle class, who run small business, are struggling to remain afloat as demand
for most products are not there. Moreover, big companies are offering the same
products at reduced prices, thereby further reducing demand. As we all know,
malls in metro cities offer vegetables, fruits, edible oils apart from clothes
at competitive prices whereby people prefer to shop online.
The good side of investment picking up is
that in just the past seven months, India created over 20 unicorns, start-ups
that are valued by investors at more than $1 billion, and the chances are
another 20 may be created before the year end. A Credit Suisse report last year
noted that India had more than 100 unicorns, including both listed and unlisted
companies, valued at over $ 240 billion. Given today’s high market valuation of
startups receiving new funding from venture capitalists and private equity
player, this is likely to be an underestimate.
One may mention here that the period between
2005 and 2014 saw foreign investments of US $9 billion, while the last five
years registered a remarkable 84 per cent increase. It is believed that post
pandemic investments were in income yielding assets, largely office followed by
retail projects and not in manufacturing to technological areas.
One thing that is quite disturbing is that
Indian big business is not bringing in much investment and the government is
relying on private foreign capital. As has been pointed out again and again,
Indian traditional business ventures only for assured gains as they have done
in case of educational institutions and nursing homes. Experimental investment
with state-of-the-art technology is definitely very poor as regards Indian
corporate houses, compared to their counterparts in countries such as Brazil,
China, South Africa etc.
In this connection it may be noted that the
recent outburst of the Union Commerce and Industry Minister Piyush Goyal, who
wanted Indian companies to make early stage investment in home-grown startups
to help retain Indian talent and ideas within the country. Speaking at the Confederation
of Indian Industry summit, said several Indian startups had seen overseas
investors enter early and exist after raking in high returns. This came in
response to suggestions by the president (infrastructure, defence &
aerospace) of Tata Sons and triggered a row with many interpreting it as
reflecting Goyal’s annoyance.
The question then arises is how much foreign
investment is likely to come in the next two-three years with the Indian media highlighting
that such investors are interested to exit from China and come to India.
Thinking in these ambitious terms by our political leaders cannot be faulted
but this will not become a reality as Chinese infrastructure and facilities
offered are far better and do not stand comparison with our country. As
mentioned in my earlier column, a confidential
report of a delegation that visited China about 15 years back, had submitted a
report to the Intelligence Bureau in Calcutta that concluded that our country
was around 50 years behind our communist neighbour.
The next question is how foreign investment –
even Indian private investment -- will help in overall development of the
economy. Will job creation witness an upward trend, specially employment for those
who have to struggle for mere existence? Will rural infrastructure of the
backward districts of the country improve and provide a new life for the
impoverished masses? High profitability and a spurt in the capital market does
not help the masses. Even manufacturing has not reached expected heights and
most of India’s products are not acceptable in the international market due to
quality and high prices.
Keeping all this in mind, there has to be
shift from aspiring solely for high growth rates to a strategy for balanced
development, where profit motive should not be sole consideration, at least of
private parties. To start with, the private sector should invest more in
R&D, make some investment in labour intensive industries and ensure that
some of these products meet global standards.
The endurance and magnitude of real economic
effects are yet to be seen while the pandemic’s fallout has further enlarged
the gap between upper and bottom income percentiles by all accounts. Meanwhile,
experts believe that high growth rates will elude us in the foreseeable future
though, however, the overall economic situation has been improving. This is
possibly the time where the strategy should be to ensure such development that
benefits the masses with emphasis on infrastructure development and job
creation. ---INFA
(Copyright, India
News & Feature Alliance)
New Delhi
13 September 2021
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