- Wall Street Journal
Prime Minister's First Official U.S. Visit Includes
Talks with Corporate Executives
NEW
DELHI—When Indian Prime Minister Narendra Modi arrives for his first official U.S. visit on Friday, a top goal will be
resuscitating investment interest in his country's sputtering economy.
Not too long ago,
investors and executives had hoped the South Asian nation would follow China to
become an Asian economic powerhouse. But many companies drawn by that potential
ended up tangled in a knot of challenges.
Overstretched
infrastructure, confusing and sometimes contradictory regulations,
foreign-investment restrictions and tax authorities that sometimes seem to
target big foreign firms convinced some firms India wasn't worth the trouble.
Foreign direct investment from the U.S. into
India has shrunk in recent years—to around $800 million in the year ended March
31, from a peak of $1.9 billion four years earlier—as India's economic growth
has slowed and executives have been disappointed by New Delhi's failure to
modernize the country's infrastructure and pass key economic policy changes.
Mr. Modi was elected this spring after
pledging to get the economy moving again. He has taken steps to cut red tape
and open the economy wider to outside participation, but hasn't embarked on the
kind of sweeping liberalization some businesses had hoped to see.
The Indian leader's
U.S. trip will be an attempt to reassure American executives that he is serious
about dismantling many of the country's long-standing barriers to doing
business. The question is: Will that be enough?
On
Monday, he will be meeting with more than 15 top executives from companies
including General Electric Co., Boeing Co., International Business Machines Corp., Citigroup Inc. and PepsiCo Inc.
The day he departed for the U.S.
on Thursday, Mr. Modi unveiled a campaign in New Delhi aimed at attracting more
investment, especially for manufacturing.
"With the steps we have
taken, your investments will not fail," he told local and international
executives as he unveiled the country's new "Make in India" slogan
and lion-shaped logo. "I have sensitized the bureaucracy to ensure they
aren't creating hurdles."
Since taking office in May, Mr.
Modi's government has announced plans to improve the country's infrastructure
and open up the defense and insurance sectors to more foreign investment. He
has also asked bureaucrats to cut back on the approvals businesses need and
started making it easier for firms to hire and fire.
In India, some of the prime
minister's biggest fans are executives that have done business in the western
state of Gujarat, where Mr. Modi was chief minister for more
than a decade.
Foreign firms have
tended to be more cautious in their views of Mr. Modi, saying it is too soon to
judge whether he can live up to the business-friendly reputation he built as a
state leader.
At
Thursday's event, Kenichi Ayukawa, managing director of Maruti Suzuki India Ltd., pointed to "the well-recognized
fact that India is not the easiest place to do business." But he said he
was optimistic about Mr. Modi's efforts to improve matters.
Maruti
Suzuki, which is majority-owned by Japan's Suzuki Motor Corp. is one of India's biggest
foreign-investment success stories. It makes close to 45% of all the passenger
cars sold in India and is now building a new plant in Gujarat.
Among
the international companies that have made big bets on India and ended up
butting heads with authorities are Vodafone Group, Nokia Corp., Wal-Mart Stores Inc. and recently even Amazon.com Inc. and Uber Technologies Inc.
Vodafone is India's
second-largest phone company in terms of subscribers, but it is stuck in
international arbitration to resolve a multibillion-dollar tax dispute.
Indian tax
authorities slapped it with a $2 billion bill on Vodafone's 2007 purchase of a
controlling stake in an Indian phone company. India's highest court said in
2012 that Vodafone didn't owe taxes on the deal, but Parliament later passed a
retroactive law to impose them.
Mr. Modi's party had
pledged during the election campaign to end "tax terrorism." But
since coming to power, it has affirmed the government's "sovereign
right" to impose retroactive taxes—though it has said it won't ordinarily
due so.
Tax
issues have affected others as well. Nokia's handset factory near the southern
city of Chennai, was left out of Microsoft Corp.'s acquisition of Nokia's handset
business earlier this year as tax authorities froze the asset, claiming it had
avoided taxes.
Meanwhile, Indian authorities have said they
are investigating whether Amazon, which acts as an online marketplace in India
rather than a retailer, is breaking foreign-investment rules and whether it
owes taxes on products in its warehouse in Bangalore.
After years of
lobbying for India to open up its retail industry to more foreign investment,
retail giant Wal-Mart has put its big India roll out plans on hold until
restrictions on foreign firms are eased. It currently operates only through
wholesale outlets in India.
These high-profile
cases as well as the tough realities of doing business in India are among the
reasons why India ranked 134 out of 189 last year in the World Bank's measure
of ease of doing business. China ranked 96th.
While most global
companies understand there is a great opportunity to make money in India as the
incomes of a billion people rise, some think it just isn't worth it.
"India has long been identified
unfortunately with red-tapism, inspector Raj and cumbersome rules and
regulations that hindered smooth transaction of business," India's
commerce minister, Nirmala Sitharaman, said on Thursday. "We are fully conscious
of these perceptions. We want to chart out a new course, a new path wherein
business entities are extended the proverbial red carpet," she added.
India needs to rev up
its manufacturing and exports if it ever hopes to provide more quality jobs and
better incomes for its populace of more than 1.2 billion people. India has some
of the lowest wage rates in the world, but it has failed to become a major
exporter.
Manufacturing still
makes up only about 15% of India's gross domestic product. Its share of global
exports has been stuck below 2% for the last 20 years. China's slice of the
world's exports has jumped from less than 3% in 1995 to close to 12% last year.
"We have to
increase manufacturing and at the same time ensure that the benefits reach the
youth of our nation," Mr. Modi said on Thursday. "We have to create
opportunities of employment. If the poor get jobs, the purchasing power of
families will increase."
http://online.wsj.com/articles/indias-modi-hopes-to-rekindle-u-s-corporate-investment-1411664078
