The phenomenon of state investment summits is fairly recent, a post-1991 element of India’s political economy. The cynical view has been that investor summits tend to be long on promise and sketchy on performance. About two decades back, after an investor summit in Maharashtra, this columnist asked the then-chief minister what was the rate of conversion of MoUs to actual investment. With his tongue firmly placed in his cheek, he quipped, “Just in the power sector, if all the MoUs fructify, Maharashtra would generate as much or more power than all of India put together.” Of course, that didn’t happen.
Investment summits have since then acquired the air of serious business, and are seen as an important constituent of the political narrative – particularly after a decade of high visibility Vibrant Gujarat meets. There is inventiveness in alliterative branding – Advantage Assam, Progressive Punjab, Magnetic Maharashtra, Investgarh Chhattisgarh, Resurgent Rajasthan, Advantage Andhra Pradesh, et al– and are increasingly competitive. Many use the tag “global”. Often officials travel abroad to connect with potential investors. The event has the countenance of rock concerts, the must attend list includes Indian billionaires, transnationals and, of course, cabinet ministers.
In the past year, the volume of MoUs signed has gone up -- and the value of the MoUs signed, stated investment intent, has migrated from thousand of crores to lakh crores. In February 2023, Uttar Pradesh, India’s largest and most populous state concluded the global investor summit. The UP government declared that 18,000 agreements promising an investment of Rs 32.92 lakh crore or $400 billion had been signed. The promised intent is more than the GSDP of Uttar Pradesh.
This week, Andhra Pradesh declared receiving 340 proposals for investment of roughly $153 billion or Rs 13 lakh crore which is just under the GSDP of the state. Karnataka declared MoUs with an investment of over Rs 9.8 lakh crore had been signed.
Last year saw other states announce signing of MoUs at their respective investment summits. In April 2022, at the beginning of fiscal 2022, the north-eastern state of Assam created waves as it attracted investment intent worth over Rs 87,000 crore. In July 2022, Tamil Nadu declared 60 MoUs worth Rs 1.25 lakh crore were signed. In August, Rajasthan announced MoUs worth investments of Rs 70,000 crore., Maharashtra inducted offsite innovation and signed MoUs worth Rs 1.37 lakh crore at the WEF.
The parade of MoUs, to say the least, signals a lift off to gross fixed capital formation across India. The big question though is how many of the pronouncements translate into investments on the ground. The history of converting intent into investment is scarcely inspiring. This is reflected in the data point on India’s gross fixed capital formation (GFCF) as a percentage of the GDP. GFCF captures investments by the government and private sector. For nearly five years, this has languished in the twenties. This has inched up from under 30 per cent to 31.5 per cent and may touch 33 plus per cent. However, the improvement has largely been due to increase in capital expenditure by governments. Promises by private entities have flattered and disappointed.
The past need not be a prologue for the future. The declarations made at investor summits of 2022 and thus far in 2023 suggest that MoUs promising investments of 60 lakh crore have been inked. For sure, not all promises will come through but embedded in the landscape of MoUs is the potential for engineering growth. India’s GDP is effectively the sum of the growth produced by the states. The critical factors of productivity – land and labour – fall under the jurisdiction of the states and a large part of the regulatory cholesterol, the permission raj, is located in the states. The gap between promise and performance is defined by the sloth that has stalled reforms.
The construct of economic development rests on necessary and sufficient conditions. Summits are necessary to woo investors but are not sufficient to translate intent into investment. Governance demands audit of data and what gets measured can be improved. It would be a good idea for the Niti Aayog to undertake a study of the past decade of investor summits to arrive at the conversion rate of investment intent. As the newly appointed CEO of Niti Aayog, B V R Subrahmanyam, formerly the commerce secretary, is well placed to create a ranking of states and a database on the efficacy of state investor summits.
Context is critical to appreciate the imperative. Rising cost of capital and slowing growth will constrain consumption and portfolio flows. This makes boosting investment all the more critical. On the manufacturing front, there is a marked shift of the supply chain away from China – studies show as much as a quarter of global goods exports, or $4.5 trillion, could shift to new domains. On the services side, where India has a historic advantage, companies are moving both process and knowledge services to cost-effective geographies. Harnessing this opportunity calls for focus on regulatory process and legislation.
State governments need to rise above showboating, about MoUs and promissory intent and find ways to clean up their act to enable investment-led growth. India is at the intersection of challenges which are opportunities.
Shankkar aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
shankkar.aiyar@gmail.com