India – hitting investors where it hurts
As a sport that dictates: “when you are out you are in” , the vast majority of the world’s population may be forgiven for not understanding cricket. Not so the man on the New Delhi Omnibus for whom the game is a way-of-life. While recent cricket scandals have tended to emanate from India’s nemesis, Pakistan, a number of madcap actions by India’s lacklustre government since the beginning of this year have suggested that the geriatric ministers have forgotten the basic tenet of the game – fair play. Put plainly, it simply isn’t cricket.
It all started with the welcome announcement that the inefficient retail trade was going to be opened up to foreign investors – sparking massive interest especially amongst the major international supermarket chains; vested interests stepped in and the government backtracked. Next came restrictions on the export of cotton to protect the local textile industry which, thanks to an international outcry and – probably more importantly – protests by Indian cotton farmers, were scrapped.
But perhaps the most absurdly aggravating of all was the Budget announcement of March 16. Regular readers of this blog will recall that, earlier this year, the Supreme Court struck down lower court decisions regarding a claim by the tax authorities that they were entitled to $2.5 billion from Vodafone for the capital gain purportedly accruing to Hutchinson on the indirect purchase of Indian operations from one of its offshore companies. Coming 3 days before the Supreme Court rejected the government’s request for a review of the decision and all 121 points of contention, it was not surprising (if galling, and arguably silly) for the Finance Minister to announce a proposal that the law would be amended to ensure that such deals would not escape liability in the future. What smacked of the batsman sending the ball crashing through the Club House window straight into the smiling face of the barman, was that the proposal was to apply the amendment retroactively to April 1961 (let’s write that slowly for emphasis – April… Nineteen…Sixty…One). That was the month that Yuri Gargarin became the first man to go into space, and it certainly appears that the Indian Government is, like the fictional Robinson family, Lost in Space.
All these issues, and especially the last, leave foreign investors up the Khyber Pass without a paddle. The world’s biggest democracy seems to be losing its way. While experiencing record growth rates in the middle of the last decade (estimates of around 10%) current GDP growth is at around 6%, which is impressive when compared to western economies, but is not enough to pull the Indian masses out of poverty. While Indian companies are successfully investing overseas (look at Tata which is spreading everywhere) the country is in desperate need of foreign private investment. Current actions of the Indian government are not the way to go about encouraging that.
One of the first big scandals in international cricket may provide a pointer to India’s rulers. Back in 1932 England’s team traveled to Australia to try and regain the Ashes (the prize for the hotly fought biennial tournament between the two countries). England could not see any way round Australia’s invincible batsman, Don Bradman, until the captain Douglas Jardine noticed in film footage that, when balls were accidentally thrown in a manner that threatened to collide with his upper body, Bradman recoiled. Thus was born the concept of “Bodyline”. Bowlers aimed to bounce the ball short, well before it reached the batsman so that he either ducked or hit a defensive shot that could be easily caught – thus dismissing him. Bodyline was totally within the rules of cricket but it was, simply, not cricket. The English team was roundly condemned and the rules of cricket were gradually changed.
India is today playing according to the rules – its democracy functions and it is legally within its rights to throw anything it likes at foreign investors. But it runs the risk that those same foreign investors will walk away. Not literally- India is too big a potential market for them to ignore – but in the extent and efficiency of their investments. If India is to regain its high growth rates it has to play fair with foreigners.