Foreign direct investment: A long saga of broken promises

Representative Image
In the past few years India has seen a rash of global companies lining up with promises to make huge investments in the country. From real estate behemoths to infrastructure majors, from mobile device manufacturers to heavy engineering companies, they all made commitments to the tune of billions of dollars. These were considered significant not only because they would power India’s development projects, but also because they would give a fillip to the government’s Make-in-India programme. 

Unfortunately, the reality has fallen far short of the lofty promises. In real estate and infrastructure, for example, companies such as Dalian Wanda, China Fortune Land Development (CFLD) and China Pacific Construction pledged investments of over $1.37 trillion in the country. But most of these projects are either stalled or have been shelved. In the mobile device and components space, biggies such as Foxconn, Wistron, Xioami, among others, have promised to invest over Rs 450 billion.

Yet the total investment up until last year was only about Rs 21 billion — only 5 per cent of the promised amount. 

In 2014 the government cleared two semi-conductor manufacturing projects which included a consortium led by ST Microelectronics and another which included global software giants like IBM. The total investment promised was  over Rs 600 billion. Today, both projects have been shelved. Quizzed as to why, a top government official in the IT department said, “We realised that there was no point in replicating such massive projects which require huge investments. We would much rather concentrate on areas where we can leverage our strength, such as in software and design.” 

One of the biggest promises of investment came from the Chinese real estate conglomerate Dalian Wanda. In 2016 the company promised to invest a staggering $10 billion to set up an industrial park in Haryana. The magnitude of the investment can be gauged by the fact that between 2000 and 2015 the total foreign direct investment (FDI) from China to India was only around $1.1 billion.

However, this project too is lying stuck as the Haryana government demanded a 26 per cent stake in it while Dalian Wanda was not willing to give more than a 9 per cent stake. The project has run into further trouble given the fact that last year the Chinese government decided to put the brakes on Chinese firms making big real estate investments overseas. Besides, companies like Wanda, which have huge debts in their books, are also under considerable financial strain now.

It is not just Wanda. In 2016 CFLD had promised to invest $5 billion in India and had signed an agreement with the City and Development Corporation of Maharashtra (CIDCO) to build townships and help create infrastructure in the state. This project has not moved forward either. Similarly, China Pacific Construction had committed to invest $5.5 billion to build infrastructure in Gujarat and had signed an MOU with the state government to that effect. An e- mail to the company requesting information on the status of the project did not elicit any response. 

Crucially, promises of large investments from global mobile device manufacturers were supposed to spur the government’s Make-in-India programme. In 2015 Taiwanese contract manufacturer of mobile devices Foxconn had pledged to invest $5 billion to set up a mega manufacturing plant in Maharashtra and generate over 50,000 jobs. But early this year, state industry minister Subash Desai virtually admitted that the project had been shelved.

In the mobile phone space, Foxconn’s rival Wistron has promised to invest Rs 65.29 billion while Chinese mobile phone manufacturer Xiaomi has pledged $500 million to set up manufacturing plants in India. Yet according to the Indian Cellular Association, the apex body of the mobile phone industry, by the end of this year, the total foreign investment in this sector will be only around Rs 57 billion.  

The government has a target of producing 500 million mobile phones by 2019. The country produces less than half the number today — 225 million. Clearly, the prospect of achieving that target via FDI is not looking too bright at the moment.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel