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No escape from political risk for India Inc?
Thu, 6 Dec Pre-Open

Indian companies, including PSUs, have been scouting for assets abroad for a while now. Given the many issues surrounding land acquisition problems in India, in addition to the quality and availability of natural resources, many companies have invested in assets and projects abroad. These developments have been done either towards diversifying their risks, expanding operations or purely for meeting captive requirements. Over the past few years, investments in emerging markets across Asia and Africa have been quite substantial.

However, the very recent news of the Maldivian Government cancelling the GMR Group's contract to develop an airport in Male has highlighted the problem being faced by such companies. Particularly that of Indian companies facing political issues overseas! There have also been cases of companies having to fight local governments.

Business Standard has highlighted some of the large projects that have gone through troubled times. These include Jindal Steel & Power's cancelation of the US$ 2.1 bn investment in La Paz, Bolivia. Another one is that of Vedanta facing labour issues at its Konkola mines in Zambia. It is believed that the workers, backed by local politicians, were demanding a wage hike of 50% for the next year. The local governments are also believed to be accusing the mining companies of evading taxes through the transfer pricing mechanism.

A key take away from this would be that of Indian companies understanding local laws better as well as also gauging the agendas of the local political parties. Also, an important factor pointed out is how to manage such issues.

India getting a taste of its own medicine?

We cannot help but relate the above-mentioned scenario to foreign companies facing similar political problems in India. This is especially given the country's dynamic policy regime. Nevertheless, it seems that the need of the hour is that the Indian government should support companies operating globally. Creating a healthy investment climate for foreign entities in India could be the first step in that direction.

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