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, theModi 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)
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