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Why India Inc does not prefer India? - Views on News from Equitymaster
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  • Jul 7, 2011

    Why India Inc does not prefer India?

    Indian companies have been expanding their global footprint. Companies like Tata Motors, Bharti Airtel, have all made huge acquisitions outside of India. And most large companies are scouting for more such opportunities. But one may wonder why is it that these companies are looking outside India? Why not within the country's boundaries?

    One of the reasons for the companies shopping for acquisition targets outside the country is the need to go global. Indian companies have long harbored global aspirations. Through acquisitions abroad, the companies are able to create a space for themselves on the global stage. Acquiring foreign companies gives them access to foreign markets, resources and at times strategic partners, who can help the companies carve a niche for themselves.

    But another reason for this trend is somewhat disheartening. Indian companies are simply too frustrated with the domestic policies. As a result, they just want to get out of the country. As reported by a leading daily, home-grown hurdles have pushed companies into investing abroad. The government has become notorious for changing its policies. The so called red tape still exists as each business has to take a number of approvals from different departments of the government. And if one ministry is in assent, it is not unusual for another to put up a road block.

    The case of the environment ministry is a classic example of this. It has not even spared Coal India, which is incidentally the world's largest coal miner. But the company has missed its production targets time and time again thanks to the environmental rules. And this is at a time, when the country is grappling with coal shortages  which has created havoc in the power sector. So no wonder, that Coal India is now looking at acquiring mines outside the country. If they can't produce coal in India, then maybe it is better to move out.

    Even Tata Motors has had problems thanks to the rigid land acquisition laws in India. The company had to shelve its plans at Singur because of the hullabaloo created by the farmers and local politicians. The company had invested nearly Rs 18 bn in the plant when then government woke up and decided to take the land back for the farmers.

    Bharti Airtel is another classic example of a company frustrated with domestic laws and policies. The company is the largest telecom operator in the country. At one point of time the sector was one of the most lucrative sectors in the country. Everyone wanted a piece of it. Including the government. As a result, the government decided to formulate policies that concentrated more on filling up the government's cash chests rather than focusing on the sector's growth prospects. As a result, Bharti had to turn its focus outside the country's borders when it came to the issue of its long term growth. And it went ahead and acquired the African operations of Zain.

    There are many other stories where Indian companies' frustration with domestic policies and laws led them to focus outwards. Such events do help put India in a prominent position on the world map. But these also lead to the outflow of capital. Capital which could very well have been invested in India had it not been for the government's ludicrous policies.  Capital that India needs in order to grow. The government needs to work hard towards policy reforms. It is not anything new for it. After all this is the same government that brought about the much needed liberalization reforms way back in 1991. It needs to come out of its current state of lethargy. It is time for politicians to stop arguing on who is more corrupt and start working out a plan for the future and put the policies in place for it. Otherwise India will see continue to see its own companies walking away from it.



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