Mumbai, April 26 In addition to the robust macro-economic indicators such as GDP growth, rising incomes, expanding foreign trade, modest foreign exchange reserves (though depleted recently), agricultural output and a burgeoning middle-class, an interesting development in the last 2-3 years should mark a watershed in India’s recent economic history.
It relates to flow of Foreign Direct Investment (FDI). During the Ninth Five-Year Plan (FYP), from 1997 to -2002, FDI inflows totalled $16.33 billion. In the Tenth FYP (2002-2007), FDI inflows almost doubled to $30.80 billion. Over the last three years, FDI flows have turned two-way. It is not only that India is attracting inward flow of FDI as a consequence of its liberalised investment climate and perceived growth opportunity, capital is flowing out of the country as investment abroad.
Altered impressions
Indian companies are increasingly buying up companies abroad as strategic acquisition. Thus, FDI now flows both ways. This two-way flow of FDI has radically altered the age-old impression that FDI means only a unidirectional flow of capital that is inwards.
The best known example of Indian corporates making strategic investments abroad include Tata Steel buying Corus Inc and Aditya Birla group wrapping-up the aluminium major Novelis Inc. Of course, the latter has been for long the well-known Indian multinational. There have also been acquisitions abroad by medium-sized Indian companies such as Godrej and Marico. ONGC has been making investments in the energy sector abroad.
All these point to the growing competitiveness of the Indian corporate sector, a newfound sense of confidence and of course, vaulting ambition to be a global player. So, the two-way flow of FDI means that not only is the world taking note of India’s market potential, Indian companies too are constantly on the lookout for synergistic acquisitions overseas.
While it may make commercial sense for Indian corporates to invest abroad, it is also an indication of the perceived inadequacy of natural resources within the country and the policy-roadblocks that stymie their exploitation. Lack of transparency and absence of long-term policies deter free flow of investments.
On the agricultural front too, investments abroad are beginning to be made. For example, K.S. Oils, a large edible oil manufacturer, has invested in oil palm plantations in Indonesia, the world’s largest producer of palm oil. This is sure to allow the company to access palm oil on a continuous basis and to an extent, de-risk its refining operations from the possible vagaries of supplies in future.
It is also an indication of the perception of the domestic vegetable oil industry about indigenous supplies. The perception is that India is most unlikely to achieve self-sufficiency in vegetable oils anytime soon and would continue to be a major importer for years to come. One is tempted to interpret it as the failure of the Indian government’s policies to boost indigenous output so as to keep pace with growth in demand.
Oil palm: Poor record
Take India’s own oil palm programme for example. As far back as 1988, the Chadha Committee identified about 8 lakh hectares of land as suitable for oil palm planting. There was initial enthusiasm from the corporate sector. Oil palm plantations were set up Tamil Nadu, Andhra Pradesh and Karnataka.
But inappropriate pricing and generally poor implementation saw a number of investors exiting the project. Some investors pocketed the incentives and vanished. Today, just about 80,000 hectares or only a tenth of the identified potential is actually under cultivation. India’s poor track record in oil palm must go down as a major embarrassment for the government and in particular the Ministry of Agriculture. It is the result of indifference on the part of policymakers and lack of commitment to making things happen.
Just for valuation?
Investment abroad to produce oilseeds in foreign countries was mooted three years ago. Some industry representatives were exploring South America as a place of production. For reasons that need little explanation, the proposal has not been pursued with full vigour. There is suspicion that some corporates simply float such trail balloons so as to raise their valuation.
It is believed, some exploratory work to identify appropriate land for oil palm cultivation in Burma and Thailand is going on. Precipitation-intensive nature of oil palm plantations makes the availability of vast tracts of land limited.
Like edible oil, the country faces a chronic shortfall in pulses production. A few years ago, an idea to cultivate pulses in Australia was mooted, but fizzled out.
Going forward, land constraints, water shortage and climate change issues are going to pose a serious threat to Indian agriculture. Tragically, there is nothing to suggest that policymakers here are concerned about these emerging challenges.
Source:The Hindu Business Line