At long last, the disputes between Escorts and Mr. Swraj Paul and between Delhi Cloth Mills (DCM) and Mr. Paul have been finally settled. The Indian entrepreneurs have agreed to buy back at an agreed price the shares Mr. Paul had acquired in the two companies in 1982 which they had then refused to register on the plea that the purchases had not been made in accordance with the rules and regulations stipulated by the government. This puts an end to a sorry episode in the relations between the government and the Indian corporate sector. The judgment of the Supreme Court notwithstanding, there cannot be the slightest doubt that the Indira Gandhi government had done all in its power to help Mr. Paul overcome the “little technical” difficulties he had run into and that this had shaken the faith of the Indian corporate sector in the government’s bona fides. With one or two notable exceptions, hardly any leading industrialist came to the aid of Mr. H.P. Nanda (Escorts) when he waged a valiant legal battle. But their sympathies were wholly engaged on his side. All that is, however, in the past. There is in fact even stronger reason why we can afford to put this episode behind us. For one thing, it is very unlikely that a foreign national, even if of Indian descent, will ever again wield the kind of personal influence Mr. Paul undoubtedly commanded with Mrs. Indira Gandhi; the source or sources of this influence can be a subject for speculation; the fact of the influence is indisputable; it is less than honest to blame a Pranab Mukherjee or an R.K. Dhawan for the favours to Mr. Paul; the orders came from Mrs. Indira Gandhi. For another, it is equally unlikely that we shall ever again get an elected Prime Minister who would go so far out of his way to help a friend as Mrs. Indira Gandhi did in Paul’s case.
But we should use this episode to re-examine some of the assumptions on which our current policy to attract “foreign” investment is based. We have put the word foreign in quotes because the government has a strong preference for investment by non-resident Indians perhaps because it believes that this is as good as our own money. There are only two justifiable reasons for this preference. First, that non-residents are not likely to command the backing of a foreign government in their dealings with us, as multinationals clearly do. Secondly, the experience is that it is not repatriated. But there is also a weakness in this policy which we in our usually confused way have refused to face up to. Like expatriates anywhere in the world of whatever descent, non-resident Indians have been concerned above all with their own survival and well-being; this is a law of nature which even the Mr. Cleans in the government of India cannot abolish. In plain terms, much of NRI money will not have been made in straightforward manner; that is, it will not have been subjected to tax. Only those who know nothing about much of the world can be unaware of this reality. It follows that this money will operate out of tax havens where no questions are asked about who owns what and how. One must be literally out of one’s mind to want this money and then to make sure that it falls within the category of the government of India’s white money.
We have not seen much justification for distinguishing between NRI and straightforward foreign investment subject to certain safeguards which ensure that we remain in charge of our own economic destiny. We are only amused by the talk of the patriotism of the non-resident Indian and the pull of India for him. These emotions do not and will not influence his investment decisions. But regardless of whether we are trying to attract NRI or foreign capital or both in our usual half-hearted way, we have to recognise the fact that we are getting drawn, gradually but remorselessly, into closer and closer association with Western economies and the international capital market. This has its own logic – the need to buy a foreign company, for instance, and therefore, to take funds out expeditiously. The Foreign Exchange Regulations Act (FERA) as it now stands represents the very negation of this logic. So does the kind of witch-hunt we witness elsewhere. This would be fine if our goal was determined by the traditional approach. But our goal is rapid development; fake moral crusades cannot be an appropriate means of achieving it.