Narendra Modi came to power by promising fast economic growth to create millions of jobs. So, it’s mysterious that he has spent so much time on foreign visits and receiving foreign dignitaries like Chinese president Xi Jinping. Foreign relations matter, but cannot create millions of jobs – that requires structural reforms that dynamise Indian investment. Till now, industrial data does not reveal any investment boom. If Indians are not rushing to invest in India, will foreigners really do so?
Based on Chinese briefings, newspaper reports claimed that Xi would pledge $100 billion of Chinese investment in India. Actually only $20 billion of deals were signed; the rest was apparently hype.
Besides, only a tiny proportion of proposals translate into actual investment. `The Economic Freedom of the States of India’, an annual report of the Friedrich Naumann Institute and Cato Institute, shows that of industrial memoranda of understanding signed by entrepreneurs in 2010-11, conversion into investment ranged from a low of 3% in Bihar to a high of 18.4% in Haryana, with Modi’s Gujarat achieving 8.5%. A separate calculation for translation of memoranda into investment between August 1999 and July 2014 reveals an implementation rate ranging from 1% in Bihar and Jharkhand to 13% in Gujarat and 19% in Haryana. Very low indeed.
Xi signed memoranda for investing in two industrial parks in Gujarat and Maharashtra at a total cost of Rs 40,000 crore. This sounds exorbitant. Even at one crore per acre, the land cost will be just Rs 2,500 crore. Top-class infrastructure is already available or coming via the Golden Quadrilateral and Dedicated Rail Freight corridor. The Chinese may offer cheap finance, but the huge debt nevertheless has to be serviced by India, so a careful look at costs -and relevance -is essential.
Over 600 Special Economic Zones have been approved since 2006, but barely 170 have come up, and these are mostly tiny software SEZs. Many promoters of SEZs have abandoned their projects for want of demand from industrialists, despite tax breaks. Companies setting up units in SEZs have to export more than they import, but can sell mainly in the domestic market. Mukesh Ambani’s SEZ in Navi Mumbai lies mostly unfilled, and his proposed SEZs in Maha Mumbai and Haryana have been abandoned.