The Gulf Special

Missing a golden chance?

Thanks to setbacks suffered in recent years, investors in the Gulf are not exactly enthused about betting on India

It is a quarter past eight and one can hear strains of Hindustani classical music wafting across the main hall of Anurag Bhushan’s plush home in Emirates Hills. A motley crowd of Indian men and their spouses mills about the ethnically decorated living room as we introduce ourselves to the 14th consul general of India in Dubai. The setting is a special sit-down dinner hosted by the Bhushans for a very special guest — senior BJP leader and former finance and foreign minister Yashwant Sinha, who is in Dubai to speak at a public event. Though it’s been some time since the Modi-led government took over at the Centre, the small talk in the room still revolves around the new PM and whether his regime will change the way the world perceives India. “Overseas envoys are the first barometer of how a foreign country perceives a particular leader or head of state,” says Bhushan, whose spouse Neeta is a career diplomat currently stationed as the deputy chief of mission at the Indian Embassy in Abu Dhabi. Sinha, whose son Jayant is now the minister of state for finance, patiently listens to Bhushan, who continues to articulate his thoughts on the new government. 

Sinha later, regales the small crowd with anecdotes from his earlier visit to a foreign country following the Pokharan nuclear test — during Atal Bihari Vajpayee’s single term as PM — when he received more than a warm welcome. The message was that envoys of a nation with a powerful leader earned more respect in a foreign land. As the evening progresses, the conversation moves to the dinner table, where an elaborate Mughlai spread awaited the guests. As forks and spoons clanked against the fine bone china plates, the consensus that emerged was things should be different for India given the decisive mandate the BJP received. That the new government wants to build bridges with this part of the world is evident from external affairs minister Sushma Swaraj’s maiden visit to the UAE a few days before Sinha and minister of state for petroleum and natural gas Dharmendra Pradhan’s trip to Saudi Arabia for bilateral energy consultations. “The business-friendly policies unveiled by the present government have drawn considerable interest from the investor community here,” explains Bhushan, earlier the head of the regional passport office in New Delhi.

Why Modi wants to reach out to the Arab world is evident if one takes stock of the two-way trade between India and the Arab region, which comprises 21 nations — at $186 billion for FY14, making up for 23% of the country’s entire global trade. However, the way business between the UAE and India has shaped up since the 70s is far from impressive. Trade between the two blocks grew from $180 million per annum in the 1970s to just over $75 billion in FY13. In FY14, the number dropped to around $60 billion, largely on account of reduction in gold imports by India in 2013. “The UAE has worked as a trade conduit for India with the GCC, Africa and central Asian countries. But since these regions have also established direct trading relationships with India, there has been a resultant drop in trade,” points out Dubai-based V Shankar, group executive director and CEO, Europe, Middle East, Africa and Americas, Standard Chartered Bank. 

In terms of investments, too, the UAE barely manages to make it to 11th place, with just $8 billion invested in the country — $2.76 billion as FDI and the rest as portfolio investments. That is somewhat of a pittance, considering that the region is home to one of the world’s biggest sovereign wealth funds, the Abu Dhabi Investment Authority. In fact, the only growing inflow to India from the UAE — home to 7 million Indian expatriates — is through remittances, which totalled over $30 billion ($14 billion from just the UAE) in 2013. Dig deeper and it doesn’t come as a surprise that like most foreign investors, the Arabs, too, aren’t quite gung-ho about investing in the country. The reasons are aplenty — the complex nature of regulations, high taxation, corruption and, more importantly, the challenges of doing business in the world’s largest democracy. Avishesha Bhojani, CEO of Bates Pan Group and one of the architects of Dubai Shopping Festival, says “Though smart money says India is much bigger than China. People are wary of India as they have had bad experiences about investing in the country, in one form or the other. The perception is you can keep growing your business in India but getting money out is really tough.”

Silver sand to quicksand

As things stand today, construction and allied industries seem to be the preferred investment options for most Gulf countries instead, followed by power and the services sector (see: Far from impressive). Companies such as the Abu Dhabi Investment Authority are among the top shareholders in infra financing company IL&FS, holding an over 12% stake. Similarly, in the energy space, Oman Oil SAOC jointly runs a 6-MMTPA refinery at Bina in Madhya Pradesh with Bharat Petroleum. In some instances, Arab investors have made bold funding decisions as well. Take the case of Maytas Infra (now IL&FS Engineering and Construction Company), the erstwhile infrastructure firm promoted by disgraced Satyam founder B Ramalinga Raju’s elder son Teja Raju. IL&FS, which took over the company in 2009, had roped in the Saudi Arabia-based construction conglomerate Saudi Binladin as a strategic partner in 2010. Founded in 1931 by the late Sheikh Mohammed BinLadin — father of deceased terrorist and Al Qaeda founder Osama Bin Laden — the Saudi BinLadin group today is the second-largest shareholder in the company with a 28% stake held through its Mauritius-based arm SBG Projects. 

 But, coinciding with UPA’s scandal-ridden tenure till early 2014, Gulf-based investors were at the receiving end. It all began with 2G spectrum scam that culminated in the scrapping of 122 telecom licences by the Supreme Court in 2012. In the ensuing fallout, Etisalat (or the Emirates Telecommunications Corporation) had to write off a loss of AED 3 billion ($817 million) after its joint venture — Etisalat DB — lost its mobile licence. The impairment charge alone dented its profits by AED 1.02 billion that year. Bahrain’s Batelco, which also lost its licence, sold off its 43% stake in STel to its Indian partner Sky City Foundation for $175 million — the price at which it had acquired the stake in 2009.

Similarly, in aviation, the Naresh Goyal-promoted Jet Airways’ decision to sell a 24% stake for over ₹2,000 crore to UAE’s national carrier Etihad Airways has come under a cloud, with BJP leader Subramaniam Swamy moving the SC to stall the deal. Compounding the problem for Etihad is the comptroller and auditor general (CAG) of India’s observation on Air India’s $350 million aircraft deal with the company. CAG has reportedly sought the civil aviation ministry’s response on why within five years of the delivery of the aircraft, Air India sold each of the planes for ₹427 crore against an acquisition cost of ₹1,300 crore per aircraft. 

Swamy, who was instrumental in bringing the telecom scam to light, has further stirred a hornet’s nest by reportedly stating that in order to pacify an upset Sheikh Mohammed bin Zayed Al Nahyan — a member of the royal family and the crown prince of Abu Dhabi, who owns both Etisalat and Etihad — the previous government favourably considered a request for allocation of additional capacity to Etihad. Incidentally, Abu Dhabi-based international energy and water company Abu Dhabi National Energy Co (Taqa), which had inked an agreement in April 2014 to buy two private hydroelectric plants in India for ₹3,820 crore ($616 million), scrapped the deal three months later citing “a change in the group’s business strategy and priorities”.

Ask Bhushan what he thinks about this recent turn of events and he gives a diplomatic response. “As these issues have been dealt with by the concerned departments, I don’t wish to comment on this. I, however, do hope that the issues are resolved amicably to the satisfaction of all sides. My own view is that the investors here make their investment decisions on the basis of not just past events but also on prevalent realities.” 

All that glitters

Of course, one key question remains — has the ground reality in India changed under the new regime? The honest response to that would be, not really. Since the Modi government has taken charge, not a single FDI proposal from the Arabs has made it to the Foreign Investment Promotion Board (FIPB). A recent state visit by Sheikh Tamim bin Hamad Al Thani, the Emir of Qatar, yielded six agreements but none that entailed huge investments. Though external affairs ministry spokesperson Syed Akbaruddin enthusiastically tweeted: “Opening new doors for investment. Minister @SushmaSwaraj meets Emir of Qatar”, the trust deficit between the two regions will take time to bridge. “Investors, including those from west Asia, have choices at hand and they look at investments rationally — what are the risks, do the rewards commensurate. They often choose developed nations such as the US despite their lower growth profile because these countries have stable policies, a safe legal environment and a liquid and transparent market. It is fair to say that India has lagged in achieving FDI flows due to negative perception of the investment climate — bureaucracy, corruption, indecisiveness and constant changes in rules,” says Shankar.

For someone like Yogesh Mehta, who came to Dubai 29 years ago without a penny in his pocket and today runs Petrochem, the largest chemical distribution chain in west Asia, things are not likely to change for generations to come in India. Clocking revenue of over $1 billion, Mehta’s company had to scale down its India business after suffering huge losses. Plans to build a terminal in Kandla — where Mehta had bought land as part of an SEZ — fell through, as his company couldn’t get the requisite permissions in place even after a two-year long wait. “Dishonesty, disruptive practices, self-satiation and corruption will not disappear overnight. It will take a generational shift, as this is a mindset issue,” says the 55 year old, who incurred losses of over $12 million in his Indian business. Though Modi has promised to improve the country’s ease of doing business ranking as part of his Make in India pitch, a lot would hinge on his ability to bring state governments on board. “Unlike in Dubai, where the government owns the land and has managed to accelerate development, in India, it’s a lot more complicated with land being a state subject, and add to that the challenges of having a very vocal democracy,” points out Bhojani.

Already, the PM is finding it tough to push the land acquisition bill in the Upper House of Parliament as he lacks the majority that he enjoys in the Lower House. The government though is doing its best to show willingness to dispel concerns among investors, especially when it comes to its combative stance on taxation. For instance, the Centre refrained from appealing the Bombay high court’s ruling in favour of Vodafone, which had been accused of under-pricing shares in a rights issue, and has also requested tax authorities to apply the same principle to all similar cases. Not surprising, then, that there are faint stirrings of hope among investors. “There is an expectation that the financial climate will improve under Modi’s leadership,” says Shankar. 

And that is the predominant emotion not just in the UAE but also in other adjoining emirates such as Saudi Arabia and Bahrain. Kingdom Holding Company’s Prince Alwaleed Bin Talal, one of the richest Arabs in west Asia, is an unabashed Modi admirer and believes that the change in regime will do India good. He believes that only a strong India will be able to counter the growing clout of China. The prince also dismissed concerns over Modi’s controversial term as Gujarat CM, during which the state saw its worst communal riots yet, saying that the controversy was never a point of discussion in west Asia. “Actually, no one knows about the incident (post-Godhra riots) in west Asia and, to be honest, nobody discussed it in Arab meetings. So, for those who know about it, the matter is dead. And for those who don’t know anything about it, let’s keep it in the grave,” he told Outlook Business [February 6, 2015 issue]. 

Though Kingdom Holding does not have direct investments in India, there are others from the Kingdom who are connected to the country. For instance, Siddeek Ahmed’s Eram Group, a diversified $1 billion entity with interests in engineering services to travel services to manpower placement, has a subsidiary in Thiruvananthapuram called Eram Scientific that is engaged in building e-toilets. “Much before he became the PM, we had interacted with Modi on the challenges of sanitation in the country. It’s really nice to see that Modi has made sanitation one of his big priorities after taking over as the PM,” says Ahmed, adding that over 600 e-toilets made by his company are already operational in the country. Eram is now looking at building sewage treatment plants — currently imported from Italy — in India by the end of this year under the Make in India initiative. 

Unlike Saudi Arabia, which is the biggest source of crude oil for the country, Bahrain — home to more than 350,000 Indians — has not exactly been a huge trading partner, with figures of just over $1 billion. Businessman Mohammed Dadabhai, who is also the chairman of the Bahrain India Society, believes that this is because the previous Indian government did not emphasise growth strategies to boost trade. “I am very hopeful that matters will change for the better from now on and we shall see growth in tangible and measurable ways,” he says, adding that there is ample opportunity for Bahraini companies to set up manufacturing facilities in India to make aluminium wheel hubs for the Indian automobile industry.

Just like Bin Talal, Dadabhai, too, says there are no concerns about Modi’s past record. “On a personal level, I think we should focus on the future, given that the Indian courts have given him a clean chit. I admire his way of functioning and how he is changing the image of India and I’m committed to supporting his vision,” he says. For now, it seems like the Gulf wants to make the right noises about investing in India. But till such a time when credible numbers start showing up, those noises will remain just that. Ask Mehta — who continues to hold an Indian passport — what advice he would give to fellow expats looking to invest in India and pat comes the reply. “Go to India on a holiday, meet family and friends, enjoy the food and culture but don’t even dream of doing any business. The odds are stacked against you.”