Is India facing unfair diplomatic assault on FDI?
In a globalised world, one would expect trade and business to make a more peaceful world, it is time to ask: Is India being unfairly pummeled on investor sentiment while all it does is what everybody else does in terms of regulating competition and quality in the interest of fair play and consumer safety?editorials Updated: Nov 19, 2015 16:37 IST
In a world where globalisation has replaced colonial exploitation and Cold War tensions, one would expect trade and business to make a more peaceful world. But tensions persist – and it is time to ask: Is India being unfairly pummeled on investor sentiment while all it does is what everybody else does in terms of regulating competition and quality in the interest of fair play and consumer safety?
Swiss ambassador to India Linus von Castelmur said this week that the ban on Maggi noodles this year sent out a “disturbing message” to Swiss companies, who may look at other countries for investments.
Now, India has been in the middle of a painfully slow process of uncovering the names behind tax evaders or dubious account holders using Switzerland’s famously opaque banking system. Have we ever had an Indian ambassador say similar things to the Swiss? All they have done is to stodgily push legal papers to uncover secret accounts.
No doubt, the FSSAI, India’s food regulator, took a knee-jerk step in banning Maggi, a familiar household name in India. But the Bombay high court lifted the ban in August and allowed manufacture after Nestle’s famous noodles passed local government-approved lab tests. The noodles are back on the shelves in India though there are issues to be sorted out.
More important, Maggi has been making substantial profit for its maker Nestle for three decades now. Surely, a country’s image cannot be rattled so fast as to rake up a diplomatic furore?
If anything, the Indian courts are here to prove that even the government is not above the law.
The Maggi case unfolded even as UK-based Vodafone struggled over its years-long dispute involving a Rs 20,000-crore capital gains tax charge. The retrospective (retro) notice did ruffle investor sentiment as it controversially backdated a rule to trap the multinational. But a court ruling helped the telecom giant and a controversial legal amendment introduced by the government queered the pitch. The Finance ministry under a new government now says it has not ruled out a settlement through an arbitration.
Vodafone continues to be a major player in India’s lucrative, rich telecom market. But British diplomacy rose during the peak of the case to defend Vodafone in the tax dispute, and even Prime Minister David Cameron took up the issue during his Indian visit.
John Hobster, global head of transfer pricing at financial consulting firm Ernst & Young told a newspaper this week that foreign investors were concerned over the retro tax issue but that has been alleviated by subsequent developments.
The fact is that some issues remain a matter of global controversy, and India is no exception. The Group of 20 (G20) summit of the world’s leading economies this week decided that its members would work together to plug loopholes that help multinationals use rules for transfer pricing between various country units to evade tax.
Neither tax evasion, nor regulation is unique to India. In fact, even the UK imposed a retro tax law in 2008, four years before India did.
Meanwhile, India’s pharmaceutical industry is at the receiving end of regulatory inspection in the US. The market capitalization of top 5 Indian pharma companies, Sun Pharma, Dr. Reddy’s, Cipla, Wockhardt and Lupin Ltd, has fallen by close to Rs100,000 crore over the past year from their peaks, much of it attributed to warnings and import alerts used by the US Food and Drug Administration on their manufacturing plants.
Indian pharma companies are leading the world in making copycat generic drugs that compete against those made by US giants, and there are critics who might say US regulatory checks are part of a trade war.
Similarly, Indian software industry regularly face visa restrictions on their professionals in the US, where a strong domestic lobby fears that Indian techies may take away American jobs.
The US is set to pass a new immigration bill that seeks to prohibit local companies from hiring H1-B visa (long-term work permit) employees if they employ more than 50 people in the US and more than 50% of the employees in question are holders of H-1B and L-1 visas – usually used by Indian techies.
In other news, Google is facing severe anti-trust charges in Europe where regulators accuse it of formally abusing its dominance in web search to limit competitors.
Indian economic interests in the US and Europe suffer from regulatory interventions, just as European and US companies suffer from government or court actions in India or in each other’s jurisdictions. Such regulatory tussles should be par for the course in a globalised economy where a slew of bodies from local courts to the World Trade Organisation exist to deal with issues.
When foreign envoys and lobbyists raise diplomatic pitches, cross a line and hold out threats, it might make sense for India to state a simple truth: Two can play this game.