Finance minister's US and Canada trip to woo investors is seen as a stopgap to get the government through next year's elections. Samanth Subramanian reports
India in bid to lure foreign investment from US and Canada
NEW DELHI // With the country close to a fiscal crisis, India's finance minister is in the United States and Canada this week to lure foreign investment.
Palaniappan Chidambaram's concerted sale of the India growth story is an attempt to rehabilitate his government's mismanagement of a slowing economy in time for next year's general elections.
Mr Chidambaram and his delegation are trying to drum up billions of dollars in new investment to help bridge his government's high current-account deficit - the difference between inflow and outflow of foreign exchange.
India's current-account deficit touched 6.7 per cent - a record high - in the quarter that ended in December last year, compared with 5.4 per cent in the previous quarter.
Mohit Satyanand, the chair of the Liberty Institute, a think tank in New Delhi, said yesterday that Mr Chidambaram had recognised that India was "not very far from a fiscal emergency, and that it's only because money is being pumped in from the West that we're doing OK".
It is not an ideal situation, Mr Satyanand said, that India depends so much on investments from abroad, "because that makes your economy extremely fragile".
"So Mr Chidambaram's roadshows aren't part of a long-term solution, but you definitely don't want a situation in the short term where people are starting to pull money out."
Mr Chidambaram landed in Toronto on Monday and flew to Boston yesterday. He is expected to visit New York, to meet more investors and corporations, before participating in the meetings of the International Monetary Fund and the World Bank, which begin on Friday in Washington.
In Toronto on Monday, he assured the Canada India Business Council that India was "committed to fiscal consolidation".
India's economy grew 5 per cent in the 2012-2013 fiscal year, a sharp decrease from the glory days of 9 per cent growth about six years ago. Between April and December last year, inflows of foreign investment declined by about 42 per cent to US$16.9 billion (Dh62bn), compared with the same period the previous year.
India has also developed a reputation as a complicated place to do business. An editorial in the Asian Age newspaper this month said as many as 215 projects were trapped in regulatory snarls, and that Mr Chidambaram "will have to work harder to get projects in India off the ground".
It is in response to these circumstances that Mr Chidambaram has begun to look overseas for investors. In January, he visited Japan, Singapore, Hong Kong and Germany.
The timing of Mr Chidambaram's trip is "completely politically dictated", said Devangshu Datta, a market analyst and a columnist for the Business Standard newspaper. "He needs money and he needs it fast," he said.
Mr Datta said the government had "done nothing for four years and watched as the situation deteriorated".
"Now there are meetings with international credit-rating agencies over the next few months, and if India's credit rating is downgraded, it will be a mess."
Many foreign investors would begin to pull out of India in the event of such a downgrade.
"So the most politically doable option right now is for Chidambaram to get some sort of long-term credit from abroad, which would help India pay its short-term debts over the next year, until the elections are over," Mr Datta said.
So far, Mr Chidambaram's roadshows in Asia and Europe have not quickened inflows of foreign investment, although Mr Datta thought that India might be able to wangle a line of credit from Japan.
Both Mr Datta and Mr Satyanand agreed that the prospect of elections was probably secondary to the more urgent fiscal crisis, which is driving Mr Chidambaram's push for foreign investment.
"I get the feeling that this is a real agenda, prompted not so much by politics as by reality," Mr Satyanand said. "I think that, after he came back into the finance ministry last July, he saw the enormity of the problem.
"This is a situation where you know your product has holes in it, but you also know people are buying it, so you think: 'Let me at least go out and make a few sales calls'," Mr Satyanand said.
"It's a very sane strategy."