Mumbai: Concerns over corruption and weak governance are hindering investment in India despite the country’s attraction as the world’s second fastest growing major economy, says a survey of British enterprises and investors operating in India.
About 41% respondents in the KPMG India survey considered India’s growth as a primary driver for investment, but a majority said they are frustrated by the time taken to get approvals and clearances, particularly from state and local government departments.
“While there appear to be visible steps to control corruption, it seems to continue unabated, especially among the smaller government offices and departments,” said the report, which is yet to be released but has been reviewed by Mint.
The report said that most developing economies have a number of common features, but with varying degrees of incidence, particularly in the context of the quality of infrastructure and skills; ease of investment and doing business; level of bureaucracy and corruption; political and market stability, and competitive level of cost arbitrage, among others.
“The enthusiasm and acceptance among foreign businesses to invest depends on the level of development and maturity in these areas. More often than not, a single drawback can negate the larger attractiveness of a market,” the report said.
The ability of a market, particularly an emerging one, to draw an audience is based on a unique set of metrics specific to each business and its risk appetite.
“The objective of our survey was to see how India fared on some important measures, and if there is indeed a way for foreign investors to deal with some of the issues and challenges,” the report added.
Steady economic growth coupled with a young population has translated into growing aspirations and consequently a large consuming middle class in India. That in turn is fuelling the demand for different customer-related services, including banking, insurance, retail and education.
Given the natural alignment of these sectors with British businesses, the Indian opportunity is quite attractive from the UK perspective, the report said.
Current statistics, however, show Britain has been relegated outside the top-tier league of India’s trading partners, though bilateral investment has picked up in the last few years. Key international deals include Tata group’s acquisition of Tetley Tea, Corus and Jaguar Land Rover, and Vodafone’s acquisition of Hutchison in India.
“When we look at the Indian liberalization process in its 20th year, a lot seems to have worked for India and it has done well on most standards of economic development,” wrote Roger Pereira, co-chair of British Business Group, and Russell Parera, chief executive of KPMG in India, in the foreword of the report.
British interest in India, which earlier revolved around financial services and retail, is gradually shifting towards roads, ports, defence, innovation, education and healthcare.
The interest is currently strong, but risks waning unless India speedily resolves the issues around restrictions on foreign investments, and the uncertainty and frequency of changes in regulation, they said.
Twenty-eight percent of respondents were quite wary of regulatory uncertainties, particularly tax laws. Some initiatives such as the direct taxes code and the goods and services tax promise to lend the desired transparency and consistency and are welcome, but will have to address industry concerns and be enacted soon, the report added.
The report also suggests that investors would prefer being provided with a clear roadmap of what a particular application or approval process involves rather than having to mindlessly struggle for want of clarity.
Twenty-seven percent of participants in the survey said the weakness in physical infrastructure will be another major deterrent in India’s pursuit of sustained growth.
The dearth of quality education and healthcare systems could also prove a serious concern for India and needs to be immediately addressed.
In the world of complex globalization, foreign investments have to be carefully planned so that they are not only regulation-compliant but can also be efficient from a commercial and tax perspective.
While this planning is typically based on prevalent laws and regulations, an arbitrary change in the government stand contrary to the existing law can seriously hamper the entire business case, the report said.