Rattling foreign investors

Source: The Hindu

Relevance: Attracting more FDI is crucial for India’s economic recovery after the pandemic.

Synopsis:  Regulatory risks and uncertainty in following the rule of law will discourage FDI in India.

Background

• The Commerce Ministry recently reported that India attracted the highest ever FDI of $81.72 billion in 2020-21.
• However, several economists argue that the surge in FDI inflows is driven by short-term portfolio investment inflows and a few major acquisition deals involving select corporations.
• Further, Government’s disputes with big companies like Vodafone and Cairn Energy, on retrospective taxation, will shake the confidence of foreign investors.

Barriers to FDI in India: Regulatory risk

• Honoring contracts and enforcing awards are vital to attracting the confidence of FDI investors. However, a lack of confidence in the host state’s credibility towards the rule of law hampers FDI investments. Following are some such examples.
• For instance, last year India had lost two high-profile bilateral investment treaty (BIT) disputes with Vodafone and Cairn Energy on retrospective taxation.
• Further, Cairn has launched legal proceedings in the U.S. to enforce the arbitral award of $1.2 billion by seizing the assets of Air India.
• Apart from this, the other set of high-profile BIT disputes comes from the cancellation of an agreement between Antrix, and Devas Multimedia. The agreement was arbitrarily annulled on the grounds of national security.
• This annulment led to a commercial arbitration between Antrix and Devas Multimedia at the International Chambers of Commerce (ICC),
• However, India lost the case. The ICC arbitration tribunal ordered Antrix to pay $1.2 billion to Devas after a U.S. court confirmed the award earlier this year.

India’s willful noncompliance attitude towards adverse judicial rulings.

• What is more worrisome is that whenever India loses a case to a foreign investor, immediate compliance rarely happens. Instead, efforts are made to delay the compliance as much as possible.
• For instance, After the ICC award, Indian agencies started investigating Devas accusing it of corruption and fraud.
• Last month, the National Company Law Tribunal (NCLT) ordered the liquidation of Devas on the ground that the affairs of the company were being carried on fraudulently.
• Further, the NCLT directed the official liquidator to prevent Devas from perpetuating its fraudulent activities and abusing the process of law in enforcing the ICC award.
• This has led to, Devas issuing a notice of intention to initiate a new BIT arbitration against India.
• The non-compliant behaviour on India’s part shows a willful disobedient attitude towards adverse judicial rulings.
• This will not help India in attracting global corporations to its shores to ‘make for the world’