Complex Made Simple

Will India keep promises to UAE investors?

Indian PM has offered $1trn investment opportunity to UAE businessmen; both countries are planning a $75bn infrastructure investment fund

To boost economic ties, the UAE and India have agreed to jointly set up a multi-billion dollar infrastructure fund. The two countries also agreed to further promote trade between them by 60 per cent over the next five years.

The UAE-India Infrastructure Investment Fund aims to step up the Arab country’s investment to $75 billion.

The trade between the two nations was valued at $60bn in 2014, with India being the second largest trading partner of the UAE for the last year. On the other hand, the UAE was India’s third-largest trading partner for the year 2014-15, after China and the US.

A joint statement issued by the both sides during Indian Prime Minister Narendra Modi’s visit to the UAE said the fund will support New Delhi’s plans “for rapid expansion of next-generation infrastructure, especially in railways, ports, roads, airports and industrial corridors and parks”.

While many have lauded the major step which could facilitate the businesses from the UAE to tap into opportunities in the South Asian country’s infrastructure sector, some think the investors will have a tough time in India to see their dreams turning into reality.

Indian news portal FirstPost says in a report that if the proposal works out it will “give a major boost to the country’s fund-starved, poorly managed infrastructure sector”. It argues that foreign money is key to develop the infrastructure sector as “the government lacks the fiscal capacity to pump in large-scale investments and the private sector is reluctant to put money on the table”.

However, the website has apparently taken a caution. “Before celebrating the $75bn commitment, one must remember that huge commitments have rarely translated into actual action in the past. At least that is what evidence from the past has taught us in India,” says the Mumbai-based news outlet.

A recent study by CARE Ratings shows that, in India, only 8.4 per cent of the total committed funds over the last five years have actually been invested. The actual investments made across all industries stand at INR2.71 trn, while INR31.93 trn investments were proposed across 11,784 projects in the country.

Delays in getting clearances from various agencies and a stifling bureaucracy have often acted as obstacles in the way to a smooth investment in the country.

The major companies in the UAE have large investment in India, with the UAE being the tenth-biggest source of foreign direct investment. Emaar, DP World, Abu Dhabi’s National Petroleum Construction Company, Abu Dhabi National Energy Company, Abu Dhabi Investment Authority, among others, have operations in the country, but some of them had to struggle to operate in the country and they had complained that there is not a conducive environment to do business.

Recently, an Indian newspaper, The Economic Times, had reported that Dubai’s Emaar Properties was close to ending its decade-old joint venture with Indian firm MGF Developments. However, the company refuted the paper’s claims, saying it was committed to the success of its projects in India.

On Monday, the UAE’s Economy Minister Sultan al-Mansoori told Bloomberg that the investors from his country have faced challenges in India related to regulations and the business environment

Meanwhile, the Indian PM has said that his government will take urgent steps to address concerns of the businessmen from the Arab country as they raised concern over complex processes for doing business in India and stressed the need for single-window clearance for investments.

The PM has also invited investors from the UAE, saying his country has an immediate investment opportunity of $1 trillion.

“Billion dollar investment announcements surely catch headlines, but Modi must get the groundwork done by fast-tracking reforms. That is where India lacks as of now,” adds First Post.

Global Times, the state-run newspaper in China wrote when Modi visited the country in May that despite the Indian PM “trying hard to attract foreign companies to invest in India” his “target will not be easy to achieve, for there are bigger challenges awaiting him down the road.”

“Power failures happen frequently. There is a lack of decent roads and ports for transportation. Labour unrest occurs from time to time. Attracting investments against such backdrop will prove to be a major problem,” argued the paper.

It further asked the PM to learn the biggest lesson: to improve the country’s domestic environment for investors after all the trips and promises he makes.

(INR1 and $1 equals to AED0.056 and AED3.57 respectively, at the time of publishing)