When Narendra Modi was elected prime minister of India in 2014, expectations were high for the former chief minister from Gujarat. His election, along with the ascent of the Bharatiya Janata Party (BJP) brought hopes in India and elsewhere that the right-wing political party would be able to make India less bureaucratic and less regulated and, in turn, that much more attractive to foreign investment, which was already eyeing the country for its status as the world’s largest democracy, full of youth and economic potential.
Some 800 million Indians cast their votes in May 2014, propelling the BJP and, ultimately, Modi, to lead the country. The election was perhaps the country’s most polarizing in recent history. Riots between Hindus and Muslims in 2002 – and Modi’s failure to take responsibility for the state government’s failure to respond to the more than 1,000 people who died in the riots – tainted his record at the helm of Gujarat and led to travel bans by countries including the United States and the United Kingdom – and made him a polarizing figure from the start.
But Modi did so many things well, that even his detractors seemed willing to give him an opportunity to flip India’s economic switch on. Gujarat had, under Modi’s leadership, lured some of India’s biggest businesses, including auto manufacturer Tata. Modi campaigned, at times, by projecting a 3D holograph of himself, convincing many Indians that he understood the importance of technology, if not the technology itself.
Upon his election as prime minister, Modi said all the right things. He promised an end to corruption, better infrastructure, better education and a better environment for investors, in part by opening India’s many state-run enterprises to private investment.
Today, the man is as polarizing as ever. Newspaper editorials regularly take him to task for something he has done, or something he has not done, a significant portion of the populace dislikes him, and another significant portion thinks he’s the best thing to happen to India since, well, forever.
“Good things take time,” says Rahul Chaudhry, managing partner at law firm Lall Lahiri & Salhotra in New Delhi. “Modi is trying, and to his benefit, he is absolutely incorruptible. The man is not really so obnoxious as the media is trying to make him. He’s working hard and so are his ministers.”
Chaudhry says that the strong feelings both for and against Modi are a typical result of a democratic form of government, and that Modi’s detractors are playing from the same rulebook Modi himself used to propel himself to power. “Modi managed social media well to come to power, and the opposition has learned from this,” he says.
At the same time, he says, Modi has succeeded in making India more attractive to foreign investors. “Foreign investors are becoming much more interested in India. Much more,” he told Asia Cargo News.
During the first half of 2015, India clawed its way to the top of the FDI charts after finishing fifth by capital expenditure in 2014, behind China, the US, the UK and Mexico. After the first six months of the year, India had captured some US$31 billion of FDI, some US$3 billion more than China and US$4 billion more than the US, according to data from fDi Markets, a Financial Times data service.
In 2014, when many other top FDI destinations suffered declines, India’s growth rate was one of the best; 2015 could be an even better year, analysts say, despite the fact that FDI is falling off into emerging markets generally.
Other data echoes India’s increasing attractiveness to foreign investors. India has jumped 12 spots in the World Bank’s annual ease-of-doing-business report, climbing from No. 142 to No. 130. Data for the report was gathered prior to June 1, 2015, suggesting that most of the improvement had come in the first 12 months of the Modi administration.
In the previous report, during the Indian National Congress party was in charge, India had slipped several spots.
“We have reversed the trend by moving up and no country has moved 12 spots in a year,” said Amitabh Kant, secretary of the Department of Industrial Policy & Promotion, as reported by India’s Economic Times. “Major reforms are going to kick in from next year which will further improve our position. We are absolutely confident of being in the top 50 in three years as per the target set by [the prime minister].”
Lawyers say that India’s attractiveness to foreign investors remains hindered by a number of things, including the well-earned reputation the government has for taking a very long time to do many of the things that are important to businesses. But many of them also say that steps are being taken in the right direction.
Make in India, the government’s initiative to encourage foreign and domestic companies to manufacture their products in India, was launched by Modi on September 25, 2014. The initiative has been widely credited with the subsequent surge in foreign direct investment into India.
“Make in India is a good initiative,” says Ranjan Narula, managing partner of law firm RNA, IP Attorneys in Gurgaon, outside Delhi. “It focuses the mind of industry. If we have to create more jobs, they won’t be just service industry jobs. They will have to include the manufacturing sector. It’s a great hope that manufacturers will come and set up businesses here.”
Narula notes that India is competing against a number of countries in similar stages of development. “You have to ask the question of why would you put up a plant in India [as opposed to doing] it somewhere else? China gives incentives to foreign investors, but there are not so many incentives here. These all have their own challenges,” he says.
A 2014 World Bank India Development Update estimated that “simply halving delays due to road blocks, tolls and other stoppages” could reduce freight times by 20% to 30% percent and logistics costs by 30% to 40%. “This alone can go a long way in boosting the competitiveness of India’s key manufacturing sectors by 3% to 4% of net sales, thereby helping India return to a high growth path and enabling large scale job creation,” the report concluded.
Narula told Asia Cargo News essentially the same thing. “If you want Make in India to work, the government will have to put a lot of money into India’s infrastructure” to improve the country’s supply chains, he says.
Earlier this year, for instance, Nestle India, owner of the Maggi brand, had to destroy 400 million packets – some 27,420 tonnes – of the popular Maggi noodles after India’s food safety regulator found the noodles “unsafe and hazardous” due to higher-than-allowed levels of lead in some packets.
“It’s not Nestle’s job to make the raw materials used in these noodles,” Narula notes. “It has to come from somewhere, and hundreds of things can happen in the supply chain.”
The supply chain can break down at numerous places, he says, and even when the supply chain itself remains intact, problems can arise elsewhere. Purveyors of fresh and frozen food, for example, may be subjected to unexpected power cuts, threatening the quality of the food on sale.
“In other countries, things like electricity are a given. Here, they’re not,” he says.
By Gregory Glass
Asia Cargo News | New Delhi