Modi is back to the grind of domestic politics. The reverberations of his US trip in the corporate world will be longer lasting. I don't remember any recent occasion when a Prime Minister garnered the attention of the top 50 CEOs in the US on a common platform. These included the likes of Tim Cook, Mark Zuckerberg, Paul E Jacobs, Sundar Pichai, Rupert Mudroch, Indra Nooyi, Larry Page and Satya Nadella. In his visit to the Silicon Valley, the interaction with leaders of the technology world was a reiteration of how central Digital India is in our new economic architecture. More importantly, the role of Digital India to bridge divides, improve development outcomes, enhance total factor productivity and secure a better match between outlays and outcomes.
While Google offered to provide free Wi-Fi in 500 railway stations across India, Microsoft has promised to empower roughly five lakh Indian villages with low-cost broadband technology. Similarly, Qualcomm has also pledged to invest up to $150 million in Indian startups through a venture fund. These platforms and pilot projects are curtain raisers for deeper engagement.
The interaction of corporates with a Prime Minister may not be unique, but rarely has there been such a sweep in the diversity and quality of their participation. It was a pity that the Silicon Valley, the global incubation hub, a success story carved by many Indian Venture Capitalists, was not on the radar screen of any Prime Minister for over 30 years. In the past I remember how difficult it was for our diplomatic representatives to secure the participation of Congressmen, Senators and Corporate CEOs with visiting Prime Ministers.
Things changed significantly after the economic reforms of 1991. During the Vajpayee era, which authored the Telecom and Highways revolutions, corporates did evince strong interest in the India growth story.
Notwithstanding, the special efforts of Prime Minister Manmohan Singh to seek a special relationship with the U.S. and their accommodation shown in the nuclear deal, the overall interest of US corporates waned. High-profile corruption cases, governance paralysis and policy stalemate during UPA 2 diminished India's relevance as an investment destination. Modi has thus inherited multiple heresies and legacies which need undoing.
So what has made the Modi engagement so qualitatively different than in the past? First, CEOs of large conglomerates will not assemble in large numbers unless they sense opportunity and profit. More importantly, the prospect of realizing these gains. Our willingness to listen, adjust while taking their grievances on board prompted Modi's remark that "The world is not going to wait for us; I know that". This is a responsible statement which embeds a new determination to improve the governance architecture, address and redress the unhappy episodes of the past and build a more trustworthy future.
Second, the changing confluence and configurations. It would be naive to write off China because they are more than capable of overcoming the present handicaps and re-position themselves. Nonetheless, given China's own policy and a re-adaptation to a lower fossil fuel based economy and moving away from an investment-export led strategy to consumption led growth pattern, offers new opportunities for India.
The insatiable global hunger for the Chinese market maybe taking a break. Investors increasingly seek alternative destinations irrespective of whether the Chinese economy has reached a final resting point. The meeting of 50 CEOs in the United States is symbolic of this change and it is an active exploration of alternative investment destinations. This could be a new "India opportunity".
Third, the India opportunity comes at a time when our own growth story has gathered fresh momentum. Continued macroeconomic stability, low Fiscal Deficit, tapering Inflation, manageable Current Account Deficit (CAD), high foreign exchange reserves, significantly lower cost of borrowing, given recent action by the Reserve Bank, augurs well. These coupled with rising GDP growth from 7.4% this year to 8% in the coming two years will enhance income and enlarge market opportunities. It could improve our competitive edge as a favourable business destination.
The commitment to improve "ease of doing business" by improving its ranking from 142 to 50 by 2017 is built on multiple platforms. These include, programs such as "Make in India", "Skill India", "Digital India", 98-point Action Plan and the "E-biz project". According to a recent report published in Financial Times, London, India has surpassed China and even the U.S.A as the most attractive investment destination in the first half of 2015. No doubt, this is in respect of green fields and new ventures. It attracted $31 billion in 2015 compared to China's $28 billion and USA $27 billion.
This is a significant improvement from 2014 when it had been ranked fifth in terms of capital investments after China, USA, UK and Mexico.
The World Economic Forum's report on Global Competitiveness (2015-16), a widely respected analysis which reflects that India now ranks at 55 among 140 countries as against a poorer ranking of 71 among 144 countries last year. The report attributes this to Modi's "pro- business growth and anti-corruption stance" as well as the improved business community's sentiment towards the government. No doubt, 55 is better than 71 but we must endeavor to sustain this improvement curve and recognise that we have a long way to go.
The CEOs who met Modi in New York continued to describe India as a difficult place to do business and pleaded for accelerating the pace of change. A laundry list is inevitably repetitive but some key concerns are articulated by them.
1. Judicial reforms, including dispute settlement mechanism and enforcement of contracts. The proposed commercial benches in High Courts and other procedural changes must be expedited. Abridging litigation time, implementing a credible alternative dispute settlement mechanism, enactment of the Arbitration Act pending in Parliament would improve both, our ranking and perception. The World Bank's Ease of Doing Business 2015 report places India at a low 186 on the criteria of contract enforcement. India believes in the rule of law but early resolution to commercial litigation is central to any business risk evaluation. It is an important prompter to large investment decisions.
2. Competitive or Cooperative federalism must go beyond symbolic acts. States will of course compete and vie for investments by improving their investment attractiveness and enhanced economic activity. This also improves chances of incumbent State governments to secure re-election. The multiplicity of permissions needed by state governments, local bodies and other authorities worries investors, both domestic and foreign. Creating institutional mechanism between Centre and States specifically on Projects and Investment which goes beyond grievance redressal would be helpful.
3. Business values, not only ease of entry but ease of exit. An early enactment of bankruptcy and insolvency laws and settling their procedures are expectations we must meet.
4. Reforms of the bureaucracy, aimed at improving efficiency and accountability has been debated for long and covered by innumerable committees. Implementing a system of penalty and rewards based on performance must be attempted afresh. The bureaucracy at the local, state and central level acting under asymmetric political regime does not make changes easy. We however need to consider afresh the processes and procedures of decision making, in a stratified hierarchical order which has scarcely changed and reward quicker decision making while protecting the bonfire decisions of the past.
5. The complex nature of the taxation system needs immediate reforms. The impending passage of the GST Bill will lend stability and transparency to the indirect tax systems enormously. On direct taxes we need to align rates and more importantly, modes of administration and tax compliance which enable us to become a competitive taxation destination with best emerging market practice. Although a progressive taxation system is much needed, to attract investments the overall return on investment must remain acceptable. A Tax Reforms Commission (TRC) with focus on issues and modalities of compliance and redefining relationships between assesses and tax authorities would be helpful.
6. Investors are wary at the indefinite delay and postponement of important economic legislation. On key legislations like Labour and Land, encouraging state governments to pursue competitive policies needs incentivisation. Legislation in parliament are pending for no lack of government zest or earnest. The Parliamentary logjam and the obduracy of the opposition to delay key reform measures will inevitably ignite public resentment. Hopefully, following the Bihar elections Parliament would recommence its expected legislative work.
The Modi interaction with America's top CEOs can become transformational; a lot depends on us and them. Magic silver bullets are elusive, but demonstrable action in the next six months has multiplier gains. Our past failures must not deter action. The true measure of success is how many times you can bounce back from failure. The India story has bounced back.
NK Singh is a member of the BJP, former MP (Rajya Sabha), has held key bureaucratic assignments and has been a member of the Planning Commission.
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