One of my very first tasks as a young corporate lawyer in the 1990s was to prepare a Foreign Investment Promotion Board (FIPB) application for a large European company that wished to establish a manufacturing unit in India.
In the immediate post-liberalisation era, it was still pretty much mandatory for any foreign company that wanted controlling ownership of its Indian subsidiary to have to apply for the “privilege”. And the laborious process certainly did not make foreign investors feel welcome!
In addition to having to get various documents notarised (an expensive and time consuming process in Europe), 20 identical copies of the voluminous application would need to be printed and submitted by hand. If a company was lucky, the FIPB would clear the proposal within three to six months. It would then take another three months to incorporate the subsidiary company, and probably a similar amount of time to obtain the myriad of regulatory approvals. In total, a full year before a company could start operating – leave alone acquiring land and eventually getting round to building a factory.
I naively asked a colleague in Delhi if the process could be speeded up. He said, “Manoj, the FIPB considers applications on a ‘case by case’ basis, but it can also consider applications on a ‘suitcase by suitcase’ basis!” He was alluding to the rampant practice of speed-money and blatant corruption that prevailed.
Prime Minister Modi in a recent interview also made reference to this “suitcase” culture, claiming that his first year in office had been marked by the fact that there had not been even a single corruption scandal. That is indeed one of the positives which have been hailed in what many western commentators have concluded has been a tentative first year, where Modi has taken small steps to reform rather than a big-bang approach.
Rooting out corruption was at the heart of Modi’s election campaign. For business, especially foreign business, this means a lot. Corruption is the single biggest non-tariff barrier to efficient and significant foreign direct investment flows. The second (and often related to the causes of corruption) is government indecision or decisions being made on an arbitrary, as opposed to policy-driven basis.
Hence, defence minister Manohar Parrikar and home minister Rajnath Singh’s drive to strip the bureaucracy of its arbitrary powers to “blacklist” foreign companies for sometimes relatively minor, unintentional, or system-driven breaches is commendable.
India, however, still has a long way to go before it can have any hope of claiming it is an easy country to do business in. But by going straight to the root issues of corruption, establishing robust policy frameworks and reforming India’s power and labour markets, Modi has already in my view taken the biggest steps. The big elephant in the room is land reform, where Modi has received the stiffest opposition.
There needs to be a missionary-like zeal to reform India’s archaic legal system. Here again, two simple but major steps could include enforcing hefty interim penalties on a litigant who delays or brings vexatious or frivolous claims, and making mediation a compulsory step.
In the UK, the overwhelming number of cases that are referred to mediation settle quickly. Add to this, genuinely fast-track processes for registering and protecting IP and India will have the key elements to realising Modi’s call for foreign companies to Make in India.
Manoj Ladwa is the founder of India Inc. and chief executive of MLS Chase Group @manojladwa
