In the last fortnight alone, three proposed foreign-funded mega steel projects were ceremonially abandoned by their much-publicised overseas promoters through official statements citing governmental non-cooperation in sorting out their land acquisition hurdles and the issue of allowing larger equity investment in one of the projects.

Trust deficit in the UPA government’s policies and prescriptions are increasingly driving out prospective large foreign investors, who had long been regarding India, boasting a huge consumer base, skilled workforce, large middle-class, democratic values and free and fair justice system, as a dream destination. Three years ago, Warren Buffett, America’s richest businessman, publicly praised India. But, now, his Berkshire Hathaway is no longer interested in the country. Buffett has wound up his plan to enter India’s insurance market even as the government announced a fresh round of sectoral relaxation norms for FDI, including the insurance business. Wal-Mart said it is in no hurry to start business in India.

Added to the trust deficit, the large and growing current account gap, increasing inflation and sinking rupee have also led to foreign direct investors’ disenchantment with India. The FDI inflow had dropped by 21 per cent, last year, which witnessed the worst economic growth in more than a decade. The current year’s economic outlook is hardly encouraging. Rupee has already lost its exchange value by almost 10 per cent, this fiscal. New Delhi does not seem to be in control of the country’s $2-trillion-plus economy, the world’s ninth largest. Worse still, the union government is having a constant fight with non-Congress governed states raising political tension and causing further concerns to overseas investors. For instance, several Indian states have already said ‘no’ to Wal-Mart outlets.

The fate of another foreign-funded giant core sector venture, billed as the world’s fifth largest integrated aluminum project, is precariously hanging in balance as both the concerned rival central and state governments have been playing a political tag-of-war to ensure that the proposed investment falls flat. Both the governments are fronting local tribal outfits to spoil the dream aluminum project by a large London-based NRI business house in a somewhat bizarre political propaganda. To ignite the anti-project passion among local tribal leaders around the proposed bauxite mining and aluminum smelter sites, Rahul Gandhi, seen as a prospective Congress prime ministerial candidate, had sometime ago descended at the highly impoverished, bauxite ore-rich hilly region of Niyamgiri in Odisha to address a specially organised meeting of the tribal folk.

The abandoned steel ventures – one each in Karnataka, Odisha and Jharkhand – combined a projected investment of $16.5 billion (over Rs.1,00,000 crore). Pohang Steel (Posco) of South Korea was to be the promoter of the steel project in Karnataka. It waited fruitlessly long enough to secure iron ore mining lease for the Karnataka project, initially estimated at $5.3 billion. POSCO said in a regulatory filing that it had agreed to cancel the project with the government of Karnataka because of delays in receiving iron ore mining rights and opposition from residents, which had held back land acquisition. Posco also proposed to set up a special joint venture steel project with public sector Steel Authority of India’s (SAIL) Bokaro plant. The investment in this project was to be around $3.2 billion. Posco decided to withdraw following SAIL’s reluctance to allow the Korean company control over the management of the joint venture.

The two abandoned Posco projects had an employment potential, direct and indirect, of at least 1,00,000 people. They would have contributed sizeably to India’s export earning and import substitution. They would have also created modern social infrastructure around those proposed steel plants. The long-term value addition in terms of wealth creation – tangible and intangible – would have been enormous. The Korean steelmaker, which is also struggling for years to set up a $12-billion steel project in Odisha, had formally announced its decision to exit from proposed project investments in Karnataka and Jharkhand. Tenacious Posco intends to pursue its luck with the under-construction Odisha project at least for the time being.

Close on the heels of the Posco announcement, ArcelorMittal, the world’s largest steel maker, officially declared its decision to pull out of the proposed $8-billion integrated steel plant, also in Odisha, after aimlessly struggling for years to secure land and iron ore mines for the project. ArcelorMittal announced scrapping of its 12 million tonne per year integrated steel plant in Keonjhar district of Odisha where it was supposed to invest Rs.40,000 crore. The company said it was exiting the project since it was unable to get necessary land and mines. The time over-run has made the project unviable. The global steel industry’s boom phase is over. The industry is suddenly passing through recession. The economic growth slow-down in China, India, Japan, Brazil, South Africa, EU and the USA is primarily responsible for lower steel demand and excess capacity of the ferrous metal across the world. It made no business sense for producers such as Posco and ArcelorMittal to waste funds and energy to pursue at this point with such projects which have failed to even take off from the drawing board.

The UK-based NRI-promoted non-ferrous metal giant, Vedanta Resources’ experience to deal with Indian authorities and politicians has been ‘hot-and-sour’ since after it acquired controlling stake in erstwhile public sector Bharat Aluminum (BALCO) and the Congress-led United Progressive Alliance (UPA) came to power at the central government. Vedanta’s investment target is $7.5 billion. The UK company’s bid to mine bauxite to feed its 1-million tone refinery at Lanjigarh in Odisha’s backward Kalahandi district has been facing an unprecedented resistance from local tribal population who inhabit the plateaus of the Niyamgiri hill ranges. Their political leaders say that they would prefer starvation death to leaving their hills for bauxite mining.

It is bad news for any country when foreign investors discover a government, calling itself pro-development, is totally unconnected with local reality, which does not allow conversion of policy into practice. Trust and governance deficits drive away foreign investors. Unfortunately, the present Indian government seems to have lost even local investors’ trust. Holding constructive and sincere dialogues with political opposition have never been a strong point of the current government at the centre. (IPA Service)