India must strive to build a reputation for policy stability and predictability
Mint in a recent interview that foreign investors are keen on India especially at a time of slowing global growth. But they want to have access to all the information needed for calculating the costs and rate of return on their investment before making a decision. Stephenson’s point is that the return on investment has to be higher than the cost of capital.
The reason he’s having to sweat the point is that money has been expensive after global central banks started raising interest rates to bring inflation under control–something that could reverse next year going by indications from the US Federal Reserve. Foreign direct investment inflows into India have slowed, with long-term investors focusing more on how the rate of return measures up against the costs. FDI equity inflows into India in the July-September quarter (Q2 FY2024) declined 7.7% annually to $9.5 billion, according to data from the Department for Promotion of Industry and Internal Trade.
Total FDI, which includes equity inflows, reinvested earnings, and other capital, declined 7.8% annually to $15.3 billion. One way India can attract more FDI inflows is by improving the rates of return on investments. As Stephenson said, that should be possible if the associated costs can be reduced.
When he said investors must have the right of information, the implied meaning is that the cost on account of the risk of policy uncertainty and flip-flops needs to be curbed–something that the Economic Survey 2018-19 also emphasised. Yet the flip-flops continue. Unabated tinkering with regulations and rules that disrupt everyday functioning of businesses, requiring companies to constantly adjust to ever-changing policies and cope with unforeseeable consequences of policy
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