POSCO’S CAUTIONARY TALETHE FUTURE OF FDI IN INDIA

LBSIM, DELHI

1st Year

Rinky Sachdeva (146)

Rohit Jain (147)

Atul Mathur (149)

Munish Mittal (151)

Aditya Goel (161)

Satyam K. Saxena (180)

2013

INTRODUCTION

Posco, the 5th largest steel producing company worldwide, exited from Karnataka citing “delay in procuring iron ore mines” Foregone opportunity: $ 5.3 Billion

Estimated steel production lost: 6 mtpa

Arcelor Mittal, the world’s largest steel manufacturer, exited from Orissa due to delay in “land acquisition & acquiring iron ore mines” Foregone opportunity: $ 7 Billion

Estimated steel production lost : 12 mtpa

Contd…

Other Cases: Walmart, world’s largest retail store, called off its

six year partnership with the Bharti Group General Motors recalled 1.14 lakh units of Tavera

due to corrupt practices followed at their Indian manufacturing unit

WHAT DOES THIS ALL MEAN FOR INDIA??

Where is India’s FDI heading?

FDI IN INDIA

In 1991, India shifted to New Economic Policy and allowed for international trade and investment, deregulation, initiation of privatization, etc

India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale

In 2008-09, FDI stood at $27.3 billion.

FDI in 2009-10 was $24.2 billion

In 2010-11, FDI into India declined to $19.43 billion, a significant decrease from both 2008 and 2009

In 2011-12, FDI stood at $28.4 billion.

In 2012-13, FDI dropped again by 38% to $22.4 billion

FDI AND ECONOMIC DEVELOPMENT FDI helps in

Improving country’s trade balance,

Improving labour standards and skills,

Technological transfer and up gradation,

Access to global managerial skills and practices

Optimal utilization of human capabilities and natural resources,

Making industry internationally competitive,

Opening up export markets, access to international quality goods and services

Augmenting employment opportunities.

BOOSTING FDI

Until 2011, Indian central govt. denied FDI in multi-brand Indian retail

On 24 November 2011, India allowed foreign groups to own up to 51 % in multi-brand retailers

own 100 % for single brand retailers, from the previous cap of 51%

More recently, there have been relaxations in some norms so that a company can invest in cities having population of less than 10 lakhs

The cap for 30 % sourcing regulation from local market has been increased from 1mn to 2mn USD

SO, WHAT’S WRONG?

Corruption Bureaucratic inefficiencies Policy paralysis Problems with land acquisition Administrative loopholes Environmental clearances

ARCELOR MITTAL: A Case at hand

ArcelorMittal faced stiff resistance to land acquisition from temple mutt.

The Orissa government, also could not offer ArcelorMittal any captive iron ore mines

It was hard for officials of the state or company executives to venture into Naxal hit areas to convince people to part with land

After 7 years of considerable investment, the company finally decided to shelf its plans

CASE OF POSCO

In 2010, Posco entered into an agreement with government of Karnataka to set up a steel plant

However, even after an year it could not acquire the required land due to agitation by farmers and religious leaders

Also, there were delays in acquiring iron ore mines Supreme Court’s 2010 order to stop iron-ore mining also

added to project delays Finally, Posco exited from Karnataka in July 2013.

SINGUR

Singur village land to be acquired by Tata to set up its’ plant for Nano production.

The land was given to Tata on a rule which specifies for public welfare.

The state govt. fenced off the land in 2006 and construction of plant started in 2007.

However, due to attacks on fences by villagers and people activists, Tata shifted its’ plant to Gujrat.

NANDIGRAM

Nandigram village was to be developed as SEZ by Indonesia based Salim group.

Villagers were not ready for the establishment of chemical plants on their fertile lands.

Violent protests by villagers lead to the death of a police officer and 12 civilian in retaliation.

Finally the project was scrapped in its nascent stages

THE WAY OUT

Additional incentives should be given to foreign investors to boost FDI

Government should ensure the equitable distribution of inflows among states

More freedom must be given to states to attract FDI inflows

Focus should also be on investing in human capital, R&D activities, environmental issues, productive capacity, sectors with high income elasticity of demand.

Contd…

Laws and rules should facilitate easy and timely acquisition of land

Delays in getting environmental clearances should be eliminated

Government must exercise strict control over inefficient bureaucracy, red - tapism, and the rampant corruption to improve investor’s confidence

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”THANK YOU!!

QUESTIONS?