It does not look as if it is a mere accident that Mr. Swaraj Paul should have been the first businessman of ‘“Indian origin” to have decided to invest in this country in a big way and that he should have sought to acquire in one go more shares in two leading companies than their present managements hold. Apparently he has a perception of his influence in New Delhi which has led him to believe that he could take over the companies.
Events have, however, taken a different and rather complicated turn. First, the press reacted very sharply to his moves. Then Mr. Rajiv Gandhi made a statement in Parliament which showed that his sympathies lay elsewhere. Now the management of Escorts has refused to register the shares and it is certain that Delhi Cloth Mills will follow suit at the appropriate time.
It is difficult to say whether Mr. Paul’s perception of his influence was well-founded to begin with, whether it had anything to do with the fact that he upheld Mrs. Gandhi’s cause when she was out of office in 1977-79, and whether the award of Padma Bhushan to him last January was an expression of the government’s regard for him only on account of his role in the Festival of India in London. As things have moved, it would appear either that the support was not all that powerful, or that it became somewhat ineffective as a result of some unforeseen developments, Mr. Rajiv Gandhi’s stand and the reaction in the press, for instance. Some other issues have been raised in connection with Mr. Paul’s investment.
Some newspapers have, for instance, called into question the capacity of the firms under Mr. Paul’s control in Britain to raise there the kind of money they have – the equivalent of around Rs. 10 crores. They have also said that Mr. Paul has transferred funds to India without the permission of the Reserve Bank.
There are also apparent contradictions in Mr. Paul’s explanations of his decision to make a massive investment in Escorts and DCM. He has said that he has been guided solely by commercial considerations. This would, on the face of it, suggest that he considers the two companies to be sufficiently well managed to assure him a reasonable return on his investment. At the same time he has poured ridicule on these managements which would mean that they cannot be worthy of the confidence of an experienced businessman who is free to invest his money in the best companies anywhere in the world.
Wrong Decision
But it is about time we set aside the specific issue of Mr. Paul’s bid to take over Escorts and Delhi Cloth Mills and directed our attention to the larger issue of nonresident Indian investment. To begin with, it has to be emphasized once again that it was wrong for the government to have extended to concept of non-resident Indians to cover individuals of “Indian origin”. This decision disregarded the twin facts that it has been this country’s consistent policy not to encourage people of Indian descent settled abroad to maintain a double identity and loyalty and that once an Indian has taken another country’s passport and citizenship, he or she has ceased to be an Indian national and subject to our laws and controls. As such, he or she should be treated on a par with any foreigner.
A number of people have felt and said that this provision in the law is intended specifically to accommodate Mr. Paul who, as is well known by now, holds a British passport. But whether this is so or not, it cannot be seriously denied that this loophole can be exploited by foreign agencies to play havoc with this country’s polity. They can channel as much money as they like into India in a crisis. It is not an imaginary fear. As it is, foreign money has been known to flow into the country at election times, the evidence being the sudden shifts in the value of the rupee in unofficial transactions.
But let us put this issue aside for the time being and focus our attention on the prospective nonresident Indian investor. But who, pray, is this person?
It is obvious that non-resident Indians fall into several categories. At one end of the spectrum we have the Indian workers, doctors, engineers and others, who have gone to the Gulf temporarily to make a little fortune for themselves, and at the other we have the successful Indian businessmen who deal in millions, indeed hundreds of millions, of dollars and pounds sterling in London, Zurich and elsewhere. In between fall the successful professional men, especially in the United States, with incomes of $ 100,000 and more a year.
The people in the first category remain wholly Indian in their orientation and loyalties. Most of them send home regularly what they save. They account for most of the remittances from abroad totaling around three billion dollars a year. They will return home when their jobs are over. As a class, they are not likely to take advantage of the concessions Mr. Pranab Mukherjee has offered and invest in Indian companies. Most of them would not know how to go about this task unless, of course, some shrewd businessmen (or smugglers) show them the way. And if they do invest, how does the total inflow of money into the country increase?
Professionals in US
The other two categories are different. Let us take the professional men in the United States first. Most of them will never return home for the simple reason that this country does not offer, and is not likely to offer in the foreseeable future, comparable opportunities. They will not at the same time succeed in getting assimilated into the American society quickly. The American melting pot does not work all that well, especially for non-whites. So they will retain a feeling of nostalgia for India. This will be accompanied by contempt for fellow Indians back at home because the country remains poor and in many ways backward. The successful do not like the unsuccessful.
Once a while they will talk of doing something for the country, as they did after Mrs. Gandhi’s visit to the US last summer. But that will not amount to much. Like most human beings, they are interested essentially in their own future and their future lies in the United States. Also India is not so much empty space in which individuals of goodwill and means from the US or the UK can do whatever they like. It is a highly crowded country in every sense of the term.
Some of these professional expatriates may invest in Indian companies for the sake of their parents and other close relations still left here, provided the political environment is reassuring and the returns as good as in the US or anywhere else. But it is an illusion to think that this can be a major source of foreign exchange for the country. This leaves non-resident Indian businessmen to be discussed.
It is no secret that a number of Indian businessmen have done well abroad, some spectacularly well. But if they invest in this country on any worthwhile scale, they will do so only if the returns are comparable to the best anywhere in the world! Their approach will be no different from that of any foreigner. They are in the business of making money and not of promoting India’s development.
There has been a lot of vague talk of such Indian businessmen bringing the latest technology into the country. This is the result of confusion. There are Indians in the US who are working on the frontiers of knowledge in various fields and there are rich Indians in London and elsewhere. But there is no relationship between the two groups. One would like to know of Indian businessmen abroad using the latest technology which they are supposed to bring home with their investment. There would not be many such names.
Scope For Smugglers
It is open to question whether the Union government has been well advised to restrict fairly strictly the coming in and operations of multinationals in India. There has, however, been a broad consensus in favour of this policy because it has conformed to the national objective of economic autonomy, an objective the Congress accepted and elaborated long before independence. By and large, this policy has worked well in the sense that we are by and large in command of our economy which several other countries are not. We have built an Indian class of entrepreneurs; in Marxist terms, an Indian bourgeoisie without which political independence would not be quite viable. The non-resident investors will not belong to this class, at least not the bigger ones among them who will continue to have their major interests abroad.
Indian businessmen abroad have, moreover, got used to working in very different climes; they are not likely to find the Indian setting too reassuring. Some of them take fright at the very mention of the word socialism. Let us face it, the non-resident Indian capital will be no different from any other kind of foreign capital and it will not flow in on any significant scale. We should not infer from the Swaraj Paul affair that Indians abroad are dying to invest in India.
It is hardly necessary to say that the scheme can, indeed will, be used to launder black money by Indian businessmen, some of whom are known to convert it into foreign exchange and hold it abroad. That is perhaps a risk the country can live with. But what happens if the smugglers begin to use it to launder their foreign holdings? No one can be sure of the size of smuggling and the profits. But by any reckoning, they must be enormous.
India, of course, needs foreign exchange because its imports are far in excess of its exports. Partly this is the result of mismanagement of the economy and weaknesses of the administrative machinery. Else, the problems of black money and smuggling would have been less unmanageable. Even so, the country’s requirement for access to foreign exchange is a fact. The question is whether the new scheme is the least risky of the options open to New Delhi. It is becoming increasingly difficult to answer the question in the affirmative.
Mr. Swaraj Paul has raised certain issues regarding the way managements of India companies function – their low share holdings, their feudalistic-dynastic approach, their casual attitude towards the interests of shareholders and so on. These are pertinent issues and so are others like the size of investments by public financial institutions. But they are not related to the question of non-resident Indian investment and should, therefore, be discusses separately.
The Times of India, 15 June 1983