Resources

Expertise

Private Sector
Public Sector
Foreign Direct Investment (FDI)
Foreign Institutional Investment (FII)
Local Investment

PRIVATE SECTOR

Obtaining finance in India is as difficult as in any other country. Usually, before applying for a bank loan one has to mortgage property or land.

Venture capital is available for conventional ‘trade related’ activities, but is much harder to get for advanced technology applications.

Established companies attempting to form consortia may borrow some of their funds from special industrial development divisions of the banks and can also float securities on the stock markets. Obviously personnel familiar with Indian legal structures are needed to manage this.

In the case of ED&MFT, private sector assistance is not considered a likely option, though perhaps if steel producers were to come forward and form a combined holding company, other operations could be conducted by practising engineers such as ourselves.

PUBLIC SECTOR

Public sector assistance was promised but ran into difficulties. It has proved difficult to persuade civil servants (who have little technical expertise) of the advantages of the project. And like with any civil service there is an element of bureaucracy and delay, not to mention political issues, to overcome too.

The grant that was originally proposed to ED&MFT was instead allocated to the Indian government’s own Ministry of Steel. This chance to modernise the engineering profession was passed over, but we remain optimistic that in the future some kind of finance will become available.

FOREIGN DIRECT INVESTMENT (FDI)

Once a taboo in India, FDI is now much more acceptable, despite political objections from trade unionists etc..

Previously, the equity ration between FDI and local commercial partnerships was subject to government interference and FDI had to be below 49%. Now 100% FDI is possible in certain sectors such as real estate, whether for commercial high-rise buildings or middle-class residential township developments.

A spectrum of FDI and local equity partnerships has thus emerged. With various privileges available, such as those given to Special Economic Zones (SEZs) FDI participation can be very profitable indeed.

However, it cannot yet be compared to China where trade union activities are suppressed. India remains, of course, a democracy.

FOREIGN INSTITUTIONAL INVESTMENT (FII)

Although FII is included in national foreign exchange reserve statistics, it is unclear whether this money is merely ‘parked’ in India to reap stock market benefits or is genuinely intended to participate in the economic reconstruction.

Reconstruction is a necessity after 50 years of ‘Neta-Babu Raj’ rule by politicians and bureaucrats. Both socialist and nationalist political groups do remain suspicious of the motivations of FII participants.

LOCAL INVESTMENT

In India, saving rates are high. In the absence of a comprehensive welfare state, until recently people have saved both for high-value purchases and their old age rather than taken out loans or pension funds. However, these days credit cards etc. are far more commonly used and as consumer spending heats up, debt is on the rise.

The newly developed microbanking system for the rural population is one positive recent development. Individuals, especially women, are encouraged to save and rural banks (often answerable to ‘panchayet’ councils of elders) are on the scene.

Panchayets are politically influenced and thus just as vulnerable to abuse and corruption as the state and national parliaments. There again, if rural communities are able to buy or fabricate even basic machinery using microfinance then it can only be for the good.

For projects on a national level, 82% of investment does come from within, with the remainder borrowed from institutions such as the World Bank or IMF.