The indomitable admirers’ of India’s growth can now rejoice. An increasingly scarce group, the believers in the subcontinent’s radiant future has been emboldened by two recent judgments. The Bombay High Court ruled in Shell’s favor in a multimillion-dollar tax evasion case. Denying the local revenue agency’s claims, it ruled that no offense was committed during the execution of a price transfer by the Dutch company. Therefore, it did not owe taxes on the profits. One month ago, an analogous ruling absolved Vodafone. Two verdicts don’t constitute proof, but they signal a trend. India is probably changing its tune when it comes to the excessive zeal for multinationals. They have been hindered for decades by a mixture of factors: elephantine bureaucracy, self-referencing justice, exasperated nationalism, and endemic corruption. No global enterprise sees India as its epicenter or the lever for its profits. In reference to growth, the adjective “potential” always precedes “real.” The predictions are always good, they always reference “demographic dividends,” but the results oscillate; they’re more frequently good than disappointing, but insufficient to break the cycle of underdevelopment. The past decade’s illusions—in which Delhi contended with Beijing for the most sustained growth—have gone back to their roots without too much pain. Foreign investments are lacking, the objectives that forced companies to delocalize, transferring capital and know-how in exchange for immediate compensation. The magic cycle that has tied global business to China only experienced its dawn in India.
The real news doesn’t lie in the judgments, but in the government’s lack of appeals. India’s Prime Minister Narendra Modi decided not to appeal the decisions to a higher court, repudiating an established practice. It’s a clear sign of truce toward investors: come to India, we won’t mistreat you; we’ll conduct business together and split the profits. It’s a necessary move, but it’s not enough. In fact, time has not worked in India’s favor, and has rendered it one of numerous options among developing countries. Even if it overcomes its Byzantine regulations, what can a manufacturing company do with its goods? What roads can they use for transport; what ports can they use for shipping containers? Which distribution networks can they trust? Labor is inexpensive, but the fragmentation of work is negatively affected by the caste system, specialization is lacking, social protection hinders mobility, and engineers cost as much as they do in Italy. For initiating delocalization and producing low-cost consumer products, the magnet of emerging Asian countries—Vietnam, Bangladesh, and the Philippines—is very competitive. Only India’s imbalance remains attractive. In order to specialize, it needs talent (which it lavishes) and services. Investments have nourished two noble and specific sectors: pharmaceutical and IT. The traditional path of low-cost goods destined for export is unfamiliar, if not hostile. India could be a complementary alternative to China, but it would need the same audacity and vision. Instead, it’s stuck in its diversity, its pride (that’s not helping it find a courageous solution), and its petty cabotage politics, articulated by electoral cycles. Modi has taken the first step, but the road is long and difficult. He needs to persuade investors, but first he needs to modernize his country, a much harder task. A worn-out adage states that India is the largest democracy in the world, so extended that it frequently turns into anarchy, which is surely the most potent repellent for foreign investments.
