Mumbai: The states are going it alone in seeking FDI. Take the case of Maharastra- Foxconn, the electronics conglomerate decided, after two months of constant wooing, marathon negotiations and final talks that ran late into the night, to invest $5 billion in the state. Foxconn produces iphones for Apple. Sources say Foxconn got what it was looking for at the end of the courtship: a hint that value-added tax refunds could be extended beyond the usual 7-9-year limit, permission for solar power generation and help with financial transfers.
“The bottom line of this entire thing is the production cost per unit. That should be less than China, otherwise there is no point,” said Bhushan Gagrani head of the Maharashtra Industrial Development Corporation, who traveled with Fadnavis.
India’s states have been sidestepping what officials call reform “traffic jams” in New Delhi, making the most of greater freedoms under Modi to manage everything from budgets to relaxing rigid labour laws for the first time in decades. While the central government wants to go all out to help, they seem stuck with parliament logjams over political issues, and the landbill and the GST bill, the two crucial reform bills are completely stuck.
India’s states, often led by charismatic local heavyweights, have long courted big businesses individually. Modi himself, while Chief Minister of Gujarat, courted businessmen assiduously and stuck as he is at Delhi, he has begun to encourage his party governed states to go their own way. This has provided reassurance for investors betting on India’s economic growth, a lifeline for big business and a boost for states desperate to create jobs.
Days before Foxconn’s agreement, General Motors announced it would invest $1 billion in India, largely to expand its main plant in Maharashtra. On Tuesday, South Korean steelmaker POSCO said it would set up a new steel plant in the state, with an Indian partner.
The forward motion in the states contrasts sharply with stalled reforms in New Delhi, which has some Indian businesses fretting a full fledged recovery will not happen until 2016-17.
“The states have to move towards making investments easier, that is in the power of the state government,” said R.C. Bhargava, the veteran chairman of Maruti Suzuki, India’s largest car-maker.
“The expectation is the competition between states will drive the so-called less fortunate states to change their systems and regulations, to create the infrastructure and environment for investment.”
Maharashtra’s chief minister Devendra Fadnavis, seemingly a favourite of Modi, as he believes he is made in his own mould, met Foxconn’s management for the first time when he travelled to China with Modi in May. At the time, Foxconn’s chief, spent a day with Fadnavis, and led a factory tour.
However, central laws too are needed to facilitate business. FDI in retail is stuck because of the blow hot blow cold attitude of states based on political ideology which is affecting scale.
States led development will favor the developed, and that is the challenge for the central government.
And there are risks to a states-led development that will be skewed to India’s wealthier regions, like Gujarat, Karnataka, which includes Bengaluru, or Maharashtra, home to financial hub Mumbai, and at the expense of others.
