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Foreign investments: India's real work begins now

This $55-billion commitment from Japan and China is just a statement of intent. For these commitments to translate into actual spending on the ground, the government will have to remove several roadblocks that caused the investment cycle to collapse in the first place.

comment Updated: Sep 18, 2014 22:24 IST

The reported incursion of hundreds of Chinese troops into Ladakh on Wednesday has cast a shadow on President Xi Jinping’s visit to India. The meaning of such incursions will be debated in the weeks ahead, but the visit has achieved notable economic outcomes. Mr Xi promised investments of $20 billion in India’s infrastructure and manufacturing sectors over the next five years. This comes soon after Japanese companies pledged to invest $35 billion in India. Clearly, Prime Minister Narendra Modi’s call to foreign investors to “Make in India” is finding lots of takers. Mr Modi’s image of being a business-friendly administrator who gets things done is definitely enthusing foreign and Indian investors. This signals a massive change in sentiment from just a few months ago when investors were reluctant to commit money to India. Sentiment and confidence, though intangible, play an important role in economic development and these commitments could be the first tangible sign that the investment cycle in India — which had collapsed because of policy paralysis, environmental concerns, problems with land acquisition, red tape and judicial intervention — is finally turning. This can set off a virtuous cycle of larger investments leading to higher growth, more jobs, higher incomes and greater consumption — all of which will prompt companies to invest even more.

A caveat is in order here. This $55-billion commitment from Japan and China is just a statement of intent. For these commitments to translate into actual spending on the ground, the government will have to remove several roadblocks that caused the investment cycle to collapse in the first place. And here, investors cannot always depend on Mr Modi’s magic wand to pave the road. They have to go to state governments, most of which are ruled by non-BJP parties, for a plethora of clearances. And many of these governments have not reformed ponderous procedures that delay projects while allowing local politicians and officials to extract rent in return for approvals.

There is a widespread consensus that the Centre has started taking quick decisions and that these are largely based on merit. Now, Mr Modi has to ensure that state governments, including those ruled by Opposition parties, buy into his vision of investment-led growth. It may not be an easy battle. Vested interests of all hues who will stand to lose control over their fiefs — including local satraps, environmentalists, social activists and trade unions — will find reasons to thwart his plans of making India an easier place to do business in. But the prime minister must take the bull by the horns and push hard to sell his vision to the states. Only then can promised investments generate jobs, prosperity and attract even more investments.