August 25, 2005

More FDI, Comrade?

Asia Times, 26.08.2005 and SAAG Paper 1518, 25.08.2005

"I must make a breakthrough with this," said Buddhadev Bhattacharjee, chief minister of India's West Bengal state, on Tuesday. On the face of it, this comment could have easily been attributed to yet another of his government's efforts to pacify the militant trade unions in the state. But surprisingly enough, this was Bhattacharjee in Bangkok, en route to his meeting with Singapore's Prime Minister Lee Hsien Loong in search of capital from the city-state.

Along the way, he met the Salem Group of Industries in Indonesia to encourage the mega-business group to invest in the state. At the Institute for South Asian Studies in Singapore, he pledged to be "unabashedly reformist", toeing the line set by Prime Minister

Manmohan Singh. Going one step further, the communist leader also made it clear that West Bengal "must reform or perish". After declaring that the country needs 100% FDI (foreign direct investment) in infrastructure, Bhattacharjee even invited foreign cash in stock markets. "We aren't looking for industrial finance only. We need FIIs (foreign institutional investors) to pump funds into our state," he told an FII meet at Singapore Wednesday. Back home, an impressed Manmohan Singh declared that all chief ministers should emulate Bhattacharjee's reform drive while the chief minister's communist colleagues squirmed at the new camaraderie between the comrade and the reformer.

Stuck with years of Soviet-style baggage that turned West Bengal into "an industrial wasteland" – according to the BBC - the state government under Bhattacharjee has been systematically trying to open up the state's economy to private investment since 2000. In speeches dotted with quotations from the great Bengali poet and Nobel laureate Rabindranath Tagore, he reiterated his central theme, that Bengal is open to all investors, and that mistakes of the past will not be repeated.

The reform-minded chief minister perhaps even surpassed himself with some of his comments. When asked whether his government would even consider an investment cap of 50% for infrastructure projects, he retorted that he had no objections to foreign entities owning even 100% of the state's ports and airports. There was a caveat though – this arrangement would only extend to the new projects, and not the existing ones. For example, the government is planning a second airport in Kolkata, West Bengal's capital, which would be open to foreign investors. But this in itself was a significant departure from the earlier myopic economic policies of the state government.

Bhattacharjee is hitting all the right notes in Singapore. He has had an extremely high-profile meeting with the Singaporean Prime Minister, with whom he signed two memoranda of understanding (MoUs) on health and education. He convinced Premier Loong and his wife Ho Ching to consider Bengal as an investment avenue and if need be, to visit the state and see the progress for themselves.

Ho Ching heads Temasek Holdings, the government's prime investment arm. A popular saying in Singaporean financial circles is that where Temasek goes, the rest of Singapore follows. Moreover, Temasek, along with the Government Investment Corporation, was adorned with special privileges during the Singapore-India Comprehensive Economic Cooperation Agreement unveiled on August 1. Bhattacharjee would be looking for Singaporean investment in a range of sectors, stretching from information technology to infrastructure development and food processing.

There are reasons to believe that Singapore may be looking at India as an attractive investment destination. In recent months, the economic ties between the countries have flowered well, with growing flights between the two, increasing trade, and cooperation in information technology. Singaporean investors have also faced disappointments in certain other markets, and many are yet to emerge from the dot-com fiasco in the US. Moreover, almost US$100 million may have been lost in the Suzhou Industrial Park in China's Jiangsu province, a major investment of the Southeast Asian city-state, and Singapore may well be looking to diversify its portfolio.

But the biggest deterrent to Bhattacharjee's dream of foreign investment flying to Bengal is the political atmosphere back home, and not international competitors. First, the politburo of his party – the Communist Party of India (Marxist) – is known to be extremely suspicious of his economic policies. Party heavyweights regularly attack Manmohan Singh's government at the center for its reforms zeal and have already blocked several major liberalization drives.

Second, a political storm is brewing in West Bengal itself, as opposition parties and coalition partners have become equally vociferous in their hostility to moves to woo foreign investors. Debabrata Bandopadhyay of the Revolutionary Socialist Party, a left coalition partner, recently declared, "We shall not allow multinationals to invest here, come what may." His rhetoric was aimed at the Rs5.1 billion (US$116 million) investment in a Special Economic Zone by the Salem Group. His party holds that the government is uprooting peasants in order to provide land for the companies in the economic zone.

For now, the storm has been smothered, at least enough for Bhattacharjee to save face at his foreign meetings. Anil Biswas, a party bigwig, has argued that "the government's efforts are in no way [a] deviation from the [ruling] Left Front government's poll manifesto of 2001". He also maintained that only mono-crop and infertile land is being transferred to investors. He even advocated an en masse shift of population from agriculture to manufacturing/service industries, for which the government is seeking investment. Ironically, such arguments have long been forwarded by economists, and long ignored by Bengal's cadres. The turnabout is proof that the state is looking down the barrel and realizes that it must reform to survive.

Bhattacharjee is sincere about his intentions, hopping from country to country for fresh sources of investment. He visited Italy and South Africa last year. Change is evident in West Bengal, most notably in Kolkata, as newly affluent middle classes adorn the shopping complexes and cinema halls of the city, where flyovers are mushrooming and roads beginning to look much better. However, finance capital is a coward. It looks for the greatest host and the safest house – and two strikes on Wednesday by taxi drivers and student unions did not do anything to reassure them that the red flag of Marxism will not gobble their greenbacks if they put them in Bengal. The chief minister keeps talking of learning from China, but try telling the cadres that!

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