The imminent recession the West will have to deal with this year gave a gloom-and-doom flavour to the proceedings at Davos. But the one bright spark strutting about the global business conclave with new found importance was India. As the curtains fall on the five-day World Economic Forum (WEF), India is all set to nudge out an increasingly isolated China as the most-favoured investment destination.
The central promenade at Davos had almost a dozen storefronts taken over by Indian entities. Besides the main ‘India Lounge’, the states too – Maharashtra, Tamil Nadu and Telangana – were offering snacks and investment opportunities in dedicated pavilions. Agencies like Invest Indialobbied hectically to set up meetings with potential investors.
From the report card, Rs 1.37 lakh crore were signed, and the new units are likely to generate employment for one lakh people. Two significant deals are with Belrise Industries, an auto systems maker, and Gogoro of Taiwan for building battery swapping infrastructure.
The Telangana government too signed MoUswith tyre major Apollo and battery manufacturer Allox Advance Materials to set up units, while PepsiCo is all set to expand operations in the state. Among other things, statistics favour India’s stars. While the world is expected to sink into recession with a abysmally low 1.7% growth rate forecast for calendar 2023, the World Bank is predicting India will be the most robust of the large economies with a growth rate of 6.6%. We are expected to overtake Germany as the 4th largest economy in 2026, and Japan at No.3 spot in 2032.
China’s fading star
In the geo-political balance of power, while China is slipping fast, India is on the rise. In the bloody and expensive war being fought in Ukraine, China is seen aligned to the indefensible Russian invasion.
On the Asian front, China has ratcheted up its ‘nationalism’ to possibly force a merger with Taiwan by military force. This has brought it in direct confrontation with the US. India, with its ongoing border conflict with China, has therefore become a natural ally for the US.
On the business front, China’s ballooning Covid crisis, and its inability to be a reliable supply chain partner, has given an advantage to India. Though China is expected to recover to a growth rate of about 4.3%, OEMs are looking at alternative, long-term hubs for their intermediate inputs.
These voices were loud and clear in Davos. A senior executive of Honeywell Corporation, Ben Driggs, said his company had a strong presence in India with about 12,000 employees, and he expected rapid growth in Honeywell’s core areas of aviation and energy.
The status of China as the ‘manufacturing hub for the Globe’ had come into question and the severe supply chain shortages seen during Covid and thereafter had created worldwide disruption. Briggs said his company had revised its model to “multiple regional hubs and not just one centre”, and that’s why India had become important.
Bharti Enterprises Chairman Sunil Mittal was more blunt. He said India was directly benefiting from the US-China tensions especially on the technology front. “The US wants a lot of things to be shifted from China to India,” Mittal said, adding that over the years India had imported $715 billion worth of electronic parts.
It was an opportunity the country had missed decades ago to become a manufacturing hub itself. To make uplost time, “India was willing to spend billions of dollars to attract the semiconductor base into
India, which we could never build over the last several decades.”
Bad past practices
While the global situation has fructified in India’s favour, a lot will depend on how well the government can remove the overhang of bad tax and regulatory practices of the past. Cairn Energy, Vodafone, pharma giant Sanofi and brewer SAB Miller have been some of the victims, and their experience has been a deterrent to a future generation of investors.
Take the case of Cairn. The Indian government refunded the company Rs 7,900 crore collected in taxes in February last year, but not before the British company had to wage a decade-long legal struggle. The tax department had used a 2012 legislation, which gave it powers to go back retrospectively 50 years to slap capital gains levies.
An international arbitration court held in favour of Cairn in December 2020, but the Indian government refused to honour the award. Cairn then had to initiate seizure of the Indian government’s overseas assets ranging from Air India planes to residential flats. This sealed the issue and in August 2021, fresh legislation was brought to repeal the retrospective tax law and drop claims of over `1.1 lakh crore against Cairn and others.
Some of the bad perception has now been repaired, but a lot of work still remains to be done before India can make a mark as an international investment destination.