Global perils for India Inc.Posted: 29/11/2012
A couple of seemingly unconnected stories this week have more in common than expected, IISS’s Sanjaya Baru suggests in a new column in the Economic Times. Indian-born British tycoon Lakshmi Mittal has found himself at the centre of an attack by French politicians: he is accused of ‘lying’ and failing to keep his promises to France over plans to close blast furnaces owned by his firm ArcelorMittal. Meanwhile, a spokesperson from India’s ministry of external affairs set a new benchmark in diplomacy by publicly complaining about a decision by the Maldives government to cancel Indian group GMR’s contract for the upgrade and management of the airport in Male, the Maldives capital.
Both cases raise interesting questions about government backing for domestic businesses. In these instances, the businesses are Indian, but the phenomenon cuts both ways. Western governments have also often expressed concerns about their firms and brands being targeted by campaign groups in India. ‘More recently, even Chinese diplomats have had to step in to protect the interests of their firms in India,’ Baru writes.
Delhi has so far not commented on Mittal’s travails in France, although it did publicly support the billionaire’s bid for Arcelor in 2006 when French President Jacques Chirac came calling to New Delhi in search of markets for French nuclear and defence equipment.
In the Maldives, where Delhi has spoken out, Baru says the alleged ‘non-transparency’ of the cancelled Male airport contract is less of an issue than ‘a worrying rise of anti-India sentiment fuelled by a coming together of extremist Islamic groups – some close to extremist elements in Pakistan and Saudi Arabia – and newly assertive pro-China business interests’.
The International Finance Corporation (IFC) has, in fact, praised the 25-year Male airport concession awarded to a consortium of GMR and Malaysia Airport Holdings, both in its structuring and awarding process, as an example of a ‘successful public-private partnership project’, Baru argues.
The ‘China factor’ assumes significance because the Maldives government has hit out at a high-profile international project that ‘has had the backing of not just the Indian government but also of multilateral financial institutions’. Asks Baru: ‘Could the tiny Maldives have taken on a major Indian firm in this arbitrary manner if it didn’t feel confident that it would have equally powerful backers, who might well step in with money, manpower and muscle to help?’
Calling the GMR Male airport stand-off ‘a case study of geo-economics … where geopolitics shapes business outcomes and business interests seek geopolitical cover’, Baru predicts that: ‘In fact, the Male airport controversy could well prove to be the tip of a new iceberg in the Indian Ocean as China raises its head seeking to limit India’s geopolitical and geoeconomic interests.’
All of this is also relatively new terrain for Indian diplomacy, which has traditionally shied away from actively promoting Indian business interests worldwide. It has tended to work quietly behind the scenes, as was the case when Indian–Nepali joint venture Dabur faced opposition in Nepal a few years ago. And on the few occasions Indian diplomats did promote Indian business abroad, Indian business was still at the margins of global foreign direct investment (FDI) flows, and the world was less hostile.
Over the past decade, not only has there been a sharp increase in India’s outward FDI, but global markets have become more competitive and ‘India Inc.’ is coming up against a range of problems, such as domestic political hostility and competition from China.
India’s outward FDI increased from a mere $1 billion in 2000–01 to close to $8bn in 2005–06 and jumped to $18bn by 2007–08. It amounted to an average of $16bn per year in the 2006–11 period.
So, Baru concludes: ‘As Indian business steps out into the brave new world of global opportunity, it will now have to learn the art of dealing with geopolitical and geo-economic challenges’.
As the Wall Street Journal also notes today, the cancellation of the Male airport contract raises questions about how the Maldives will meet the needs of a thriving tourist industry vital to the islands’ economy. The Maldives went through a period of political turmoil and a change of government earlier this year.