By Subrata Majumder
Paradoxically, while Prime Minister Narendra Modi succeeded in persuading the Japanese and Chinese investors, he failed to influence the big American investors. Instead, his political wave and speech impelled the Indian Diaspora only. While a number of billion dollar projects were signed during his visit to Japan and the Chinese President Xi Jinping’s visit to India, no major deal was signed during his visit to USA. Nor any major commitment was made by the US government.
Japan made an ambitious target for doubling Japanese investment in India within 5 years and committed US $ 35 billion for infrastructure projects for 5 years.
China pledged US $ 20 billion investment in Indian infrastructure development in the next five years. China offered its technical cooperation for high speed trains, bullet trains and development of Indian railways. To make Modi’s dream “Make in India” a success and to reduce trade deficit, China committed to set up industrial parks in India. China also committed enhanced market access of products like pharmaceuticals and agro-foods.
Even though US-India Business Council forecasted American investment of US $ 42 billion in next two- three years based on their survey of one-fifth of its members , no specific proposal was made in respect of areas , which can gear up the ‘Make In India’ programme.
USA is the sixth big foreign investor in India. It accounts for only 5 per cent of total foreign direct investment in India. Why is USA shying away from investing in India, while it is the biggest foreign investor in the world? Why were big American investors not impelled by Modi wave and his assurance to roll out red carpet minus red tape?
The fallacy lies with the American pattern of investment. Unlike Japan, Asia has never been the target of American investors. Europe and developed countries are the main destinations of USA‘s investment abroad. Almost 74 percent of accumulated USA’s foreign direct investment abroad is accounted by high income developed countries, who are members of OECD (Organization for Economic Cooperation and Development). Asia accounts for only 15 percent of USA’s foreign direct investment abroad. Europe alone accounts for over half of USA’s foreign direct investment abroad.
In contrast, there was a paradigm shift in Japanese investment from west to east during the last decade. In 2003, west (USA + EU) accounted for 67 percent of Japanese investment abroad. Asia’s share was merely 18 percent. In 2013, share of USA +EU slipped to 56 percent, which let Asia to reap more Japanese investment with 30 percent share.
US investors might have been nudged by Modi’s political outreach and his assertiveness on manufacturing sector. But, their enthusiasm was shadowed by India’s slow steps in opening gates for service sectors. From the historical data of US foreign direct investment abroad, it is revealed that USA investment in service sector outsmarted the investment in manufacturing sector. Of the total accumulated USA foreign direct investment abroad till the end- 2012, service sector accounted for 27 percent and manufacturing’s share was only 14.4 percent. Among the major areas of US investment in service sectors were finance, banking and wholesale trade.
Given the pattern of USA investment abroad, there are three reasons which failed to inspire the American investors. First, American investor’s interests were rebuffed by BJP’s aversion to FDI in multi-brand retail sector. Reversing the UPA’s policy on FDI in multi-brand retail and the plight of Walmart seemed to have stymied the American initiative to look forward to India as friendly destination. Banking sector is another area, where big American investors are interested to invest. But till now, the US investors do not find the Indian market attractive for investment in the financial sector.
Second, unlike Japan and China, the US investors in private sectors are rarely supported by the government. In multi-billion dollar projects in developing countries, the Japanese private investors are largely backed by Japanese government financial support, such as financial aid. The US $ 100 billion DMIC (Delhi Mumbai Industrial Corridor) project is a case in point. The initial fund of the DMIC project was set by the Indian and Japanese government on equal sharing basis. Similarly, in case of China almost the entire Chinese investment abroad is by Chinese government. Over 90 percent of Chinese investment abroad is by Chinese State enterprises.
Third, the Japanese and Chinese investment are endowed with political initiatives, in addition to business interests. In contrast, US investors have only business interests.
With the surge in Japan – China tensions, particularly during the ruling periods of two heads , Prime Minaster Shinzo Abe of Japan and President Xi Jinping of China , India has emerged a pivot for both countries to pitch their political dominance in Asia. Both are vying for Modi’s heart.
Japanese wooing of Modi began with China’s assertiveness to dominate in Asia. Visit of Japan’s Imperial couple Emperor Akihito and Empress Michiko (November 30 – December 5, 2013) after five decades symbolizes Japanese bent towards India. The visit unleashed a paradigm shift to a bipolar relations, embracing economy and politics. Till now, Japan was reticent in acknowledging India’s growing role in Asia Pacific region. Now, even Japanese Prime Minster Shinzo Abe has a special affinity to Mr Modi. Indian Prime Minister is one of the three personalities in Mr Abe’s twitting list.
India- China relations have taken a new dimension with the escalation of Japan’s interests in India beyond commercial relations and India’s reciprocation to it. Sudden and unscheduled visit by Chinese Premier Li Kequiang to New Delhi, a week before Dr Manmohan Singh visited Japan in May 2013, was viewed as a reflection of China’s concern. The relationship deepened after Mr Modi became Prime Minister. China asserted that India should accept China’s importance to India after China became the largest trading partner. (IPA Service)