x Abu Dhabi, UAEWednesday 26 July 2017

India needs more foreign investment

A British company's victory in a tax case before India's top court should send the government there a message about policy on foreign investors.

Two decades ago as India's minister of finance, Manmohan Singh pushed through reforms to end the "licence raj", a nightmare web of central planning permits and regulation that had sealed India's economy off from global trade and investment.

The reforms, most of them enacted while PV Narasimha Rao was prime minister, jump-started an Indian economic boom that helped hundreds of millions rise from poverty.

Today Mr Singh is prime minister himself, and he presides over a country that needs a new wave of reforms if its economy is ever going to lift the hundreds of millions of Indians still mired in poverty. A Supreme Court ruling on Friday points the way.

The world hears often and at length about India's corruption in high and low places and also about its appallingly pre-modern infrastructure. Indeed, both of these are all-too-effective brakes on development.

A third problem, less reported but no less serious, is the pervasive wariness, even hostility, about outside private investment. Twenty years after the licence raj, foreign investors are too often perceived as menacing, rather than essential partners in the growth India needs.

On Friday, the Supreme Court ruled in favour of Vodafone, the British telecom company, in a capital gains tax matter springing from its 2007 acquisition of an Indian mobile-phone firm. The ruling will spare Vodafone some $2.6 billion (Dh9.55bn) in taxes.

This is a legal ruling on a specific case. But over the years of legal combat, the Vodafone matter has acquired great symbolic significance, and has been watched attentively wherever investors aspire to do business with India. UAE-based Etisalat, which entered the Indian market in 2008 and is involved in its own legal battle, is among those paying attention.

The ruling may, as we hope, serve as a clarion call to Indian lawmakers and bureaucrats, helping them to understand that an unpredictable, avaricious bureaucratic climate is a damaging deterrent to investment. Tax policy, labour law, regulatory delays and other aspects of the country's business climate all need attention. So, as always, do the wider problems of infrastructure and corruption.

To be sure, India's complex, tumultuous politics can slow progress to a crawl. The government has recently had to abandon much, though not all, of a plan to allow foreign retailers into the country, for example.

But if Mr Singh and his allies can rediscover the spirit that led to the reforms of the early '90s, all Indians will stand to benefit.