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Kanika Datta: Promises to keep

Kanika Datta  |  New Delhi 

Kanika Datta

Within three weeks, Prime Minister Narendra Modi was able to get investment commitments worth $54 billion from the two rival Asian powerhouses of Japan ($34 billion) and China ($20 billion). It is significant that both agreements, spread over five years, were predicated on improving the business environment in India. Analysts have rightly been sceptical about whether China and Japan - especially the former - will make good on these pledges. But the equally pertinent question is whether India can reciprocate, an issue that will no doubt be raised by American businessmen amid the high expectations set by his impending foray across the Atlantic.

This is an issue of which Mr Modi, ever the realist, is probably all too aware. With his creative media team's penchant for the catchy phrase, he told Japanese businessmen that India would lay on the red carpet rather than the red tape. He probably said this in all sincerity. Like several prime ministers before him, he is eager to see India become prosperous rather than a nation distinguished by grinding poverty. More than any other, he sees foreign investment as a means to achieving that elusive goal. But it is unclear how he can extend this promise with such assurance, even if he has five years to make good on it.

A quick scan of the fate of some early efforts at attracting investment and reforming the investment climate will show him that India is a complicated place to do business for reasons that go well beyond the World Bank's precise metrics.

In the 1990s, soon after the licence raj was put to rest and well before Mr Modi's rise, chief ministers from Chandrababu Naidu of undivided Andhra Pradesh to Jyoti Basu in West Bengal started making annual summer trips to the cooler climes of Europe and the United States to hard-sell their states as investment destinations.

The results were decidedly mixed. Mr Naidu's focus on technology earned him much attention and some investments. The establishment of the Indian School of Business (ISB), jointly promoted by blue-chip global B-schools and consultancies, was the showcase of all this. For Mr Naidu, the ISB's plush, world-class campus, a clutch of IT back-offices, and R&D outfits did much to mask the fact that the really big bucks were mostly headed to Bangalore and Pune.

Hyderabad was impressively spruced up, grew rapidly but, sadly, developed a reputation for harbouring shady businesses. At any event, the bulk of the Andhra populace was disenchanted with Mr Naidu's reforming zeal since the jobs mostly went to educated urbanites, and voted him out of power after two terms.

If Mr Naidu's efforts to transform undivided Andhra met with limited success, Bengal's efforts to jettison its communist credentials were positively disastrous. Jyoti Basu assured investors that the trade unions, famously known for their obstructionist approach, were within his party's control. But ironically, it was a Congress-affiliated union, Intuc, that opposed the sale of the near-defunct Great Eastern Hotel to Accor Pacific and scuttled Basu's initial attempt to reform Bengal. The Mitsubishi chemical plant in Haldia and a couple of IT back-offices in Salt Lake remain the only monuments to Basu's legacy in economic reform.

His successor, Buddhadev Bhattacharjee, an able man with good intentions but the poorest of communicators, fared even worse with his policy of trying to power through reforms by inviting investors of all provenance - from Ratan Tata and Jindal to Pepsi and the Salim Group of Indonesia. By practically giving away land free and offering tax breaks that would make a backward state envious, he hoped to transform Bengal into the business hub it once was.

Mr Bhattacharjee reckoned without the power of the lumpen ultra-left, the very forces that almost three decades of Communist rule had unleashed, with its ability to stoke grievances of those who felt disenfranchised. Mamata Banerjee's rise via the anti-industry movements in Singur and Nandigram owes itself to this trend. Hilariously, though, she tried to emulate her predecessors by heading off to Singapore earlier this year, attracting derisive mirth rather than dollars from those who know her state's approach to business all too well.

And then Mr Modi might want to recall the fate of two of India's signature foreign direct investment projects - Enron and Posco. The first was located in Maharashtra, a state that had as strong a reputation for being investment-friendly as Gujarat. Power was one of the earliest industries to be liberalised, but Enron's Dabhol Power Company foundered on the terms of the distinctly dodgy terms of the power-purchase agreement - negotiated and renegotiated by both Congress- and Bharatiya Janata Party (BJP)-led coalitions. The shady United States parent foundered in a welter of corruption in its home country and the plant was effectively nationalised.

As for the $12-billion steel plant that Posco was to set up in Odisha, that agreement was signed in 2005 on terms that attracted worldwide attention for the appropriation of local iron ore resources allowed to the Korean giant. But it proved a non-starter because of complications connected with land acquisition. This is emerging as the bête noire of industry in general but it is significant that a part of Posco's problems were connected with getting squatters off government-owned land, pointing to the preference for land as an asset over the ephemeral promise of jobs.

As these brief histories suggest, Mr Modi may have been able to speak for Gujarat as chief minister. But as prime minister of India, he really cannot speak for any of the states, where the investments eventually go, not even those in which the BJP rules. Vasundhara Raje, for instance, is already facing opposition from within to the express speed with which she is trying to reform her state. Politics, as the prime minister will soon discover, can be an unpredictable beast.

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First Published: Wed, September 24 2014. 21:44 IST
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