BackVodafone is India’s top foreign investor despite tax woes
Vodafone Group Plc spent $1.5 billion in India during the year through 31 March, according to commerce ministry data
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New Delhi: A company that became a global symbol for tax problems in India made the single largest investment in the country of any foreign firm in the last fiscal year.
Vodafone Group Plc spent $1.5 billion in India during the year through 31 March, according to commerce ministry data. That was more in one go than any multinational company (MNC), according to two officials who compiled the data who asked not to be named because they weren’t authorized to speak to the media.
The UK-based carrier’s ventures in India come even as it faces tax disputes in the country over bills that add up to about $4.5 billion. Even so, the company says the opportunities outweigh the headaches as Prime Minister Narendra Modi pushes to overhaul the economy.
In April 2014, Vodafone became the first foreign carrier to take full control of an Indian operator after the government removed a 74% cap on outside ownership in the industry. The company is India’s second-largest mobile-phone carrier by subscriber volume, with 19% of the market.
“When the rules changed, we had the opportunity to increase our stake to 100% in one of our fastest growing businesses," said Ben Padovan, a spokesman for the company. “Vodafone is strongly committed to India and we have invested significantly over many years."
Vodafone faces at least three legal disputes centering on Indian tax demands, including a $2.2 billion case stemming from its 2007 acquisition of Hutchison Whampoa Ltd’s local wireless unit. Earlier this year, the Modi government said it wouldn’t appeal any future court rulings in favour of the company.
Investment surge
Modi’s administration has repeatedly said it wants to install a stable and predictable tax regime while clearing up legacy issues, particularly those from a law with retroactive effect passed in 2012. That message is starting to pay off.
Foreign direct investment (FDI) surged 27% to $31 billion during the last fiscal year, according to the government data. That encompassed almost all of Modi’s first year in office after he won the first lower-house parliamentary majority in 30 years.
Tax is no longer a major sticking point for many companies, according to Sudhir Kapadia, national tax leader at Ernst and Young in Mumbai.
“Foreign investors are far, far more comfortable today than they were under the previous government, making the decision to invest in India much easier today than it was even a year or two ago," he said.
Problems still remain, of course. A row over tax demands on foreign funds has helped sour investor sentiment toward Modi’s government, making India’s benchmark stock index the world’s second-worst performer in the past three months.
Worth the hassle
Modi is pushing to improve India’s ranking on the World Bank’s Ease of Doing Business index. India currently ranks 142 out of 189 countries behind the likes of Nepal and Mozambique. On tax issues, it performs even worse.
The biggest of Vodafone’s remaining cases will be decided by through international arbitration. So far delays have prevented a three-person panel from hearing the case, according to the company’s recently released annual report.
“While India represents an excellent long-term investment opportunity, the present regulatory challenges are hampering economic development," it said.
For most companies, India is now worth the hassle and uncertainty, according to Vishnu Varathan, a senior economist at Mizuho Bank Ltd in Singapore.
“There are going to be some legacy issues that pop up," he said. “The belief is that as you go forward, these are more likely to be resolved than not." Bloomberg
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