Is India FDI friendly?

Fri, 11 Feb Pre-Open

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Foreign Direct Investments (FDI) is precious for any country. This is the foreign exchange that would be staying within the country's borders for a long time as compared to its volatile partner FII (Foreign Institutional Investments). Hence, it is not surprising that most countries try to make FDI friendly policies and rules.India is no exception to this. But the competition for this FDI is huge. China being one of India's biggest competitors. But is India's really FDI friendly? The recent signs don't seem to indicate this.

The Cairn Energy -Vedanta deal is just a point of reference in this regards. Cairn had discovered oil deposits in Rajasthan, almost 15 years ago. At that time, this discovery was a huge relief for the country, which depends on fuel imports to meet its energy needs. Fast forward to recent times. Cairn plans to sell its stake in the Indian arm to UK based Vedanta. This would not affect the Indian operations in any way. And now, ONGC has put a clause stating that the deal cannot go through unless Cairn India makes a change in its pre-1999 deal and starts sharing royalties on the crude production from India with ONGC. This would cost Cairn India US$ 3 bn in terms of royalty payments. We know that it sounds funny that an Indian company should suddenly come up with an objection to a stake sale contract between two foreign companies. Even funnier is that the Indian government has decided that ONGC's stake is legitimate and has put an objection on the Cairn-Vedanta deal. Till such time as this is cleared, the deal cannot go through.

Another example is of the Vodafone tax issue. Vodafone bought Hutch's Indian telecom operations. Hutch is a Hong Kong based company and Vodafone is a UK based company. Obviously Hutch made a profit by selling its stake in the Indian arm. But the Indian authorities have concluded that Vodafone needs to pay taxes to the Indian government for this transaction.

There are numerous other examples of deals getting stuck with the environment ministry. The POSCO deal being one of them. It took the environment ministry almost one year to clear this deal. The issue of FDI in retail has been doing the rounds forever. The Indian government wants FDI to grow. But it is rigid when it comes to helping these investors out. Then why would the investors continue to flock to India? So is India really FDI friendly? Doesn't look like it.