Despite the efforts of PM Modi, top-ranking government officials in major economies and company executives are still feeling that ‘India is a difficult place to do business’. This needs to be reversed in leading foreign investor nations.

 

In a scene eerily replayed from the saga of ISRO cryogenic engine head scientist Nambi Narayanan’s travails, similar allegations and attacks appear to be taking a toll on India’s leading medical devices R&D institution, the Sree Chitra Tirunal Institute for Medical Sciences and Technology (SCT), an autonomous institute and tertiary-care hospital of national importance created by an Act of Parliament in 1980. Its cherished autonomy, a core strength for rapid advances it has achieved even against Covid-19 with the development of multiple path-breaking technologies, is now in tatters. The institute’s innovations include:

  1. RT LAMP technology for SARS-CoV-2 n gene identification at two points, a confirmatory rapid and accurate test;
  2. Magnetic nanoparticle-based RNA extraction kit for use during testing for detection of Covid-19;
  3. IoT hands-free used mask disposal unit, and disinfection units; and
  4. Indigenous technology Deep Brain Stimulation (DBS) i.e. pacemaker for the brain to manage Parkinson’s tremor, rigidity, involuntary movements—done in collaboration with the Bhaba Atomic Research Centre (BARC) all now appear to be at risk. Why does that impact on foreign direct investment to India?

MORE DIFFICULT TO DO BUSINESS IN INDIA

At the core of investment decisions today is most often high-technology. Foreign and even domestic investors rarely invest in run-of-the-mill projects with no new patented technologies. The “Doing Business” Report of the World Bank is merely one, not the sole arbiter, of investment decisions. That is because going up the ranking numerically is not mathematically correlated with increases in investment in any country. There are a plethora of other factors not captured in the Report.

Prime Minister Narendra Modi has made every effort to market India, travelling incessantly to advocate around the world. Further, he made valuable personal links with the heads of leading nations, like Japan’s Prime Minister Shinzo Abe, who in turn are speaking out how attractive India is as an investment destination, mostly in response to his friendship and confidence in PM Modi. However, once leading bean counters of corporations get involved in the investment decision-making, they remain exceedingly worried about a number of factors. In a recent column, I covered the multiple indicators and issues that investment officers of corporations use to decide.

Having initiated the first Internet-based service at the World Bank Group, on foreign direct investment, a decade before the “Doing Business” Reports started, at a time when even those in the top management of the Bank were asking “What is the Internet?” and opining that “Internet will never spread to Africa” in 1993, perhaps the most significant is a composite of tangible and intangible factors and information that get compressed into gut-level perceptions. That, today, is alarmingly worrying because despite the efforts of PM Modi, top-ranking government officials in major economies and company executives are still feeling that “India is a difficult place to do business”. This is the refrain that needs to be reversed in leading foreign investor nations.

This has little to do with any political development. Rather, it is a net sum of historical factors combined with broader sluggish economic growth worldwide, and certain policy and administrative missteps. An example in this respect is the case of the SCT Director, whose appointment extension was approved with overwhelming majority by the autonomous institution’s Institute Body in which the Department of Science and Technology Secretary voted for her term renewal, and a few weeks later initiated steps by his deputy to order that renewal to be rescinded. Nowhere else in the world might something like that happen, a new game of Indian Roulette. At such points, wise heads are expected to step in to stop such macabre games, if only to prevent potential negative impact on FDI, broadly regarded as sacrosanct.

THREE AREAS OF GRAVE CONCERN

The three major concerns that corporate honchos are relaying back to PM Shinzo Abe and other well-wisher-leaders, after on-the-ground fact-finding by corporate bureaucrats, including discussing with Indian executives, academics, lawyers, and the Indian diaspora:

  1. India is a place where even small disputes get elevated to prolonged litigation in court after court, with one court overturning another. Executives comment that unlike India, South-East Asian nations make every effort not to make life difficult for investors—by trying very hard to make business activities work successfully through out-of-court settlements, rather than obsessing on legalistic confrontational positions and lengthy court proceedings that are certainly not win-win. Mediation and arbitration are in their infancy in India.
  2. Decision-making at the Centre in New Delhi is slow and complicated, with additional complexities in the Centre-State and intra-State decision-making. This has been a complaint for decades.
  3. Decisions are made in silos—sometimes one silo being completely at odds with the interests articulated in another silo. For instance, lowest price purchasing is one silo, quality is another, and national security is yet an entirely different silo that in fact may permit more flexible purchasing arrangements.

This is why many Japanese companies exiting China amidst rising tensions in the Indo-Pacific consider Vietnam, Thailand, Cambodia first, despite that India has orders of magnitude greater market. Further, with decades of international diplomacy and worldwide diaspora networks, India’s outreach to the world’s hard-to-reach regions is perhaps unparalleled. Raw materials essential for every category of manufacturing to achieve economies of scale, and skilled personnel are found in abundance in India. On purchasing power parity terms, India is already among the largest economies in the world. Japan has committed $2.2 billion to help its companies exit China, although most of it is for manufacturing to return to Japan, that got hollowed out in the stampede to take advantage of lower cost factors over past decades in China.

This does not have to be so. Had Suzuki not come to India to collaborate with Maruti in 1982, today Suzuki as a car company would not have existed; instead it is exporting to over 100 countries from its manufacturing plants in India. Similarly, with blood bag technology developed at SCT, a startup, Penpol, commercialized it and was later bought by Terumo of Japan that today produces the largest number of blood bags in the world out of its factory in Thiruvananthapuram. So too SCT’s original technology-transfer to Indian company TTK of the first indigenous heart valve made by SCT, enabled many more people to be able to afford valve replacements.

SCIENCE AND TECHNOLOGY BOOSTS INVESTMENT

Thus, science and technology are at the heart of investment decisions, beyond all the other factors discussed. To damage India’s scientific and technological strength, is in effect to continue to drain foreign currency in endless imports and go directly against PM Modi’s Atmanirbhar Bharat passion. Yet that is precisely what is happening with attacks on SCT. Endless rounds of overturning “decisions” that were already made by institutions has a chilling effect on investor interest, and the problem is compounded by multiple conflicted orders that overturn previously agreed collective and institutional decisions

To transform will require multifarious changes, including entirely out-of-the-box thinking. How can that be achieved unless there is radical metamorphosis of government, and government-company relationships? In such reinvention, seeing victory in troubling a scientist using a missing phrase or comma in some obscure regulation, as is happening today, will not be considered praiseworthy, rather creating an enabling environment for excellence would.

PM Modi won the 2019 elections with ease. It is now within his power to create a tectonic shift in government and the country so as to make India the default option for units relocating from the People’s Republic of China.

Dr Sunil Chacko holds degrees in medicine (Kerala), public health (Harvard) and an MBA (Columbia). He was Assistant Director of Harvard University’s Intl. Commission on Health Research, served in the Executive Office of the World Bank Group, and has been a faculty member in the US, Canada, Japan and India.