The Tata group has unveiled a $26 billion domestic investment plan for the next five years. There are no surprises here. Most of the industrial projects that the Tata group has mentioned in this plan have already been announced. Work has begun on some. But the Tata investment catalogue is important as a signal from the country’s largest business group that it continues to invest in India.
The policy logjam and recent corruption scandals have raised fears that Indian business groups will eventually prefer to put their money to work in more investment-friendly countries. In a televised interview with Indian Express chief editor Shekhar Gupta in October, HDFC chairman Deepak Parekh said that the “big boys” of Indian business are looking outside the country because it’s easier to do business there. Ratan Tata has also expressed his displeasure about the investment climate in India, especially after his companies came under investigation for their alleged role in the telecom scam.
Some of the most eye-catching investments by large Indian business groups in recent years have been in the form of international acquisitions: Corus (by Tata Steel), Jaguar Land Rover (Tata Motors), Novelis (Hindalco), Zain (Bharti Airtel) and shale gas assets in the US (Reliance Industries). Outbound foreign direct investment has soared, though India is a better growth market offering higher returns on invested capital. But many of these investments have been spurred by business logic —synergies, entry into new markets, access to new technologies and the like—rather than an escape from a stifling India.
The fear about Indian companies moving capital abroad is anyway a bit overblown. The combined annual non-residential investment in India by the private sector and the public sector is around 24% of gross domestic product. That would be around $400 billion of India’s $1.7 trillion economy. Corporate investment alone is around $250 billion. The $15 billion or so that goes out every year as outbound foreign direct investment is modest given the size of the economy.
Yet, there is a perception problem thanks to government inaction on the policy front and a tendency to paint all business activity black by anti-corruption activists. The Tata investment plan needs to be seen against this backdrop—as a signal that India is not some lost cause.
Is Tata’s optimism an exception among other businesses? Tell us at firstname.lastname@example.org