As the world, including India, fights coronavirus, talks have already begun about the post COVID-19 situation, which is anticipated to bring both challenges and opportunities.
The pandemic will not only have geopolitical consequences, but will also bring geo-economic shifts, or as I would call, bring a balance to a system which is tilted towards one country, i.e. China.
Over the last two decades, almost every kind of manufacturing firm has set up its plants in China because of the country’s aggressive FDI policies; but many now see this as a part of a larger global conspiracy. By attracting manufacturing, China has been reaping the benefits of R&D being done in other countries without even spending on it.
These ill-intended trade and investment practices were being pursued full throttle till the time world woke up to the consequences of the COVID-19 pandemic.
China has a trade surplus with almost every country in the world, but it has now transformed into trust deficit. Now, every country wants to pull out their investment, especially in the manufacturing sector, from China, and look for opportunities elsewhere.
India has been one of the top choices for such investments especially after Prime Minister Narendra Modi took charge of the government and started his comprehensive global outreach. With PM Modi's 'Make in India' campaign and the increase in Ease of Doing Business rankings, India became a shining spot for investors across the globe. This was followed by introducing the Goods and Services Tax (GST) regime that has boosted the confidence of international investors. But we still need to do more to capitalize the potential of our country to be a dream destination for investors. Now there is a need for a multilateral approach for India to emerge as the most preferred country in the present geo-political and geo-economic context.
Several companies are likely to shift their bases from China post COVID. The pandemic has become only a trigger for them to leave, but the thought process to leave China has been simmering for quite some time because of other reasons like wage inflation, real estate inflation, and the Chinese government trying to push companies deep into mainland China.
The post Covid-19 context has given India an opportunity to invite all those companies that are leaving China. India has been a favoured destination for global companies in the last six years, but we have still seen significant share of investments going to countries such as Vietnam, Philippines, Thailand and Malaysia.
We have been hearing that the government is gearing up to invite those companies that are leaving China, and forming a robust strategy for the same, including PM Modi himself putting a lot of effort by holding meetings with all the stakeholders. But the strategy to invite investors to India should also be floated as a social initiative where everyone from the system and society should get into a mission mode to promote the country, starting from ministries, officials , missions, think-tanks, social organisations, diaspora communities and even citizens.
As we all know, there has been a demand from international investors for labour and judicial reforms, specifically on the sanctity of contracts and resolution of disputes. Centre and some of the state governments are discussing some changes in these areas.
Organisations like Invest India and DIPP have been quite successful in establishing the brand India concept, but just like a business works on building a brand and leverages it to increase sales, the same should be followed so that, as a country, we can capitalise on the brand and image created by the leadership and the Indian government in last six years.
But here are some specific points which should be emphasised upon to attain maximum benefits. First, we need to identify the sectors where we anticipate shift in investment. We then need to identify the industry size (from macro to medium) and handle their needs accordingly. While there is an obvious impact on a macro basis, we should also keep in mind that the MSME sector carries a larger socio-economic impact in India today.
A nodal body of the FDI for timely clearances should be formed and it should work in coordination with facilitation agencies like Invest India for better results.
Ease of doing business needs to get new wings. It should focus on investors choosing India as their priority. Officers in-charge should ensure proper follow-up and provide full assistance to investors. It is all about going an extra mile.
Demarcation of strengths of the region: India is a large country with diverse qualities, strengths, and opportunities. We have witnessed in the past that investments in India are confined only to select regions and cities, resulting in consolidation of opportunities in a few corners only. We need to create a matrix of available strength of every region and start a business navigation portal enabling smooth identification of the region best suited for industries and investors.
Taking investments and economic activities to rural areas should be our priority as well. This will also help global investors have better outcomes for their projects as the cost of land and other resources would be much lesser in rural and semi-urban locations as against metros. If needed, the government should come up with incentives for driving investments in semi-urban and rural regions of the country.
We presently lack social awareness about the importance of foreign investment, businesses, and industries. In the past, we have seen our society either protesting foreign investment or be dominated by it.
It’s important we understand foreign investments in our country will make us a global economic power. Each one of us should become the ambassador of our own region, state and country and always try to give comfort to those who are investing in our region.
Identifying Investors’ Requirements
There is also a need to identify and list requirements of investors who are shifting their base from China.
Role of Embassies and Consulates: We have seen the proactive approach of our Embassies, High Commissions and Consulates ever since PM Modi has taken over the office. But now is the time when every Indian Mission around the world should take up the task of inviting companies from the countries where they are working.
It is not tough to make a list of companies from a country that have manufacturing business in China and are planning to diversify. The commercial consular in our embassies should be in contact with representatives of such companies and convince them to consider India as their next investment destination. This approach will always provide legitimacy and confidence to investors. Continuity in interaction with business leaders on various platforms is very important, and all the interactions should be well-coordinated with the facilitating agency and supported by relevant departments. Recently, we saw the newly appointed Ambassador of India to the US, Taranjit Sandhu, convene a virtual interaction with more than 150 members of the business community which sent a positive message to the business community there. A similar exercise should be conducted across the world. Aggressive follow-up with companies from friendly nations, which are committed on international platforms, shall bring quicker results.
The Ministry of External Affairs and the Ministry of Commerce and Industries should work in coordination. Every country would be looking to have its share of investment pie from the companies diversifying from China after COVID-19. Among Asian countries, Vietnam, Philippines and Thailand are our main competitors. In Europe, Romania, Portugal, and Spain have emerged as preferred destinations. But none of these countries have advantages like India -- better connectivity and abundance of human resources.
A collaboration platform has been missing from our system. The MSME sector from any country does not move alone as a venture. They either adopt the way of going in groups, going as ancillary units of anchor investors, or look for suitable partners in the country of choice from the relevant sector. This helps in giving them a comfort of having a local partner, with less capex and higher chances of understanding the market in a better way. This will also help our MSME sector in getting the exposure of new technologies and production capabilities.
Two things need to be done to create such a platform: enabling the sanctity of agreements, and quick execution.
Confidence building measures are necessary to create an environment conducive to foreign capital inflows.
“Measures should be taken by authorities to simplify the procedural aspects of FDI investment in infrastructure by sovereign wealth funds/global pension funds, improving the ease of investing", was one of the suggestions of the task force on funding of infrastructure sector projects in coming years.
“Measures such as developing Model Investment Agreements in line with international standards and best practices, consistent, fair and unambiguous enforcement of investment terms through efficient investment protection and neutral investor arbitration claims mechanism and creation of non-ambiguous tax and repatriation frameworks and systematic framing of FDI-linked performance condition will aid in improving the FDI inflows in India", was suggested in the report of the recently constituted task force on National Infrastructure Pipeline.
It is best to approach existing foreign investors to invite new investments from their respective countries. We should also emphasize in engaging with the existing investors. Officials, state governments or ministries can organise a series of interactions with them across the country and make them goodwill ambassadors of the New India. This can also help in identifying some of the pain points.
For India to emerge as the next destination for the global investors, Indian diaspora can play a significant role. PM Modi has mentioned on various platforms that every NRI is an ambassador of Indian culture and value system.
FDI norms can be relaxed further keeping in mind the abilities and aspirations of our youth who create new milestones every day by floating and establishing startups. These are going to be the people who one day would be making IPR dollars.
We need to be loud and clear in showcasing our strengths. We should keep a track of the policies that our competitors adopt and should come out with better proposals from time to time.
India has done relatively better in comparison to some of the developed countries while fighting the COVID-19 pandemic as the leadership of our country learnt from Wuhan and Italy and took steps that helped in the containing the virus in a country with a population of 1.3 billion. The same thing needs to be learnt from top competitors. We must learn some of the good practices of China and try to implement here, which shall help in hand-holding investors.
(The author is member, India-Russia Bilateral Council, Niti Aayog and Central Committee Member, foreign affairs department, BJP. He is also former chairman, Foreign Investment and NRI Cell, Govt of Haryana. Views expressed are personal.)