UAE responds to Uttar Pradesh’s investment call

Officials from Uttar Pradesh recently secured Dh13.4 billion from the UAE. The growing and healthy competition between states is attracting FDI and despite issues about doing business in the country, funds are coming in.

Narendra Modi, India’s prime minister, has been wooing foreign investment since he came to power, with high-profile visits to countries such as the UAE and US. Adnan Abidi / Reuters
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A few weeks ago, a high-level delegation from the northern Indian state of Uttar Pradesh, including top state government officials, visited the UAE.

The trip turned out to be lucrative. They managed to secure Dh13.4 billion of investment into manufacturing, infrastructure and health care from five Indian-owned businesses in the UAE. While the amount was announced at an investment forum in Dubai, the identities of the businesses were not revealed.

India’s federal and various state authorities are increasingly focusing on attracting foreign direct investment (FDI) and investment from non-resident Indians (NRIs).

“There is a healthy competition among states to attract and retain investors,” says Subramanya S V, a former venture capitalist and the co-founder of the Fisdom personal finance app, based in Bangalore.

“States are doing several things. Investors’ conferences are held where they showcase the various opportunities. Single-window clearances have been set up for large projects so that approvals can come in fast. Several states have announced tax rebates on specific projects. In general, the state governments are very responsive to the needs of the global investor community.”

For example, following in the footsteps of the successful Vibrant Gujarat investors’ summit held every two years in the western state in India, other states have launched their own conferences in an effort to attract investment, including Resurgent Rajasthan and Invest Madhya Pradesh.

“Indian states have been competing with each other by giving tax incentives, single-window clearances, better infrastructure,” says Kartick Maheshwari, a partner at Khaitan & Co, a law firm in Mumbai. “However, FDI in various states has been more cyclical rather than because of any incentives provided by the states.

Earlier Maharashtra and Gujarat were doing extremely well, and now Tamil Nadu is attracting a lot of FDI because of the automotive industry sector. Karnataka has also regularly attracted investments, though it faces a perennial power shortage.”

India, last year, relaxed FDI rules for NRIs, so that non-repatriable investments by NRIs are treated as domestic investments are not subject to the FDI caps that other overseas investors are subject to.

Narendra Modi, India’s prime minister, has been wooing foreign investment since he came to power, with a series of high-profile visits to countries including the UAE, United Kingdom, United States and Japan.

FDI flows into India reached a record US$51 billion between April last year and February, according to figures from the Indian government.

“There used to be apprehensions about investing in India, or at least in some states, because of many factors,” says Thomas John Muthoot, the chairman and managing director of Muthoot Pappachan Group, a conglomerate based in Kerala. “But things have changed a lot in the recent years. They are not wary of investing in India. In fact … there is a renewed interest among NRIs to invest in India because of ease of doing business and business-friendly policies. Almost all states are vying to get their pie of investment from countries that are keen to invest in India. It is encouraging to see that every state has now big-bang investment summits, special drives and packages.”

The Indian government last week cracked down on Indian and foreign investors using Mauritius as a tax haven when it amended a tax treaty to start imposing capital gains tax on investments from the island nation from next April. Mauritius has been the biggest source of FDI into India, with a number of Indian investors using the island for “round-tripping” to reduce taxes. The government is also planning to revise a similar tax treaty that it has with Singapore.

Although some expect a negative effect on FDI flows from Mauritius as a result, Mr Maheshwari says that the move sends a positive signal to foreign investors because it will lead to “more certainty” when it comes to India’s tax regime.

A number of factors are driving an improvement in the environment for FDI.

“The FDI climate is improving with government opening up new sectors for FDI, like defence, and doing progressive reforms under its Make in India campaign,” says Samir Lodha, the managing director of QuantArt Market Solutions, a risk management company in Mumbai.

“India’s ranking in World Bank’s ease of doing business study has improved. Also, India has a great start-up culture.”

He says that a few states, such as Gujarat and Maharashtra, still attract the bulk of the investment from overseas.

Apoorv Ranjan Sharma, the co-founder and president of Venture Catalysts, says “the investment scenario in India has flourished”.

“We have seen large policy relaxations and favoured regulations across many industries for FDI,” he says. “The favourable international relations established by the prime minister Narendra Modi’s foreign visits have unlocked investment opportunities.”

Alok Ranjan, the chief secretary of the Uttar Pradesh government, speaking at the investment forum in Dubai, said that “the state offers enormous possibilities of enterprise and success to Middle East entrepreneurs”.

“By simplifying procedures and sprucing up the investment mechanisms across the state, the government is ensuring that investors are provided the best services and facilities,” he said.

Abu Dhabi’s Lulu Group, which is owned by Yusuff Ali, who is originally from Kerala, in January unveiled plans to invest 10 billion rupees (Dh543 million) in developing a shopping mall, convention centre and luxury hotel in Lucknow in Uttar Pradesh.

“Smart partnerships are all about finding the right timing and momentum,” says Kulwant Singh, the president of the Indian Business and Professional Council in Dubai.

“Today is India’s time and our chance to invest. I believe that along with the opportunities in the region, there is also a perfect opportunity to invest back home in India, the first stop in the UAE’s ‘look East’ policy. The UAE is keen to innovate and build a knowledge economy. Indian expertise could transform the next phase of development here, while India could gain from UAE investments for its Make in India campaign.”

Despite improvements in the investment climate, there remain hurdles that need to be overcome, experts say.

“Poor infrastructure such as lack of power and transport, inflexible labour laws, weak intellectual property laws, difficulty in land acquisition, slow approval processes remains key concerns,” says Mr Lodha.

“There remain issues on the ground level that need to be remedied to attract more inflows,” says Mr Sharma. “For instance, important pro-industry laws such as the goods and services tax and the land acquisition bill have not been passed. Additionally, the government’s unclear stance on issues such as retrospective taxation concerns foreign firms.”

Mr Subramanya believes that further steps should be taken to attract more flows of capital into India.

These include “stable and predictable regulations” and the “simplification of procedures for foreign investors, opening up of more sectors for foreign investments”.

Mr Muthoot says that “India is on the right path when it comes to attracting foreign investment”.

“This has to be followed up in right earnest with investor-friendly policies and programmes,” he says. “Sector-specific initiatives, incentives under the income tax act, research and development incentives, and export incentives should continue unhindered. It is a fact that we are still below the desired ranks when it comes to ease of doing business. Of course we climbed up a few rungs, but there is still a long way to go.”

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