Birla's US investment plans: Why capital flight from India is here to stay

India is facing a flight of capital, not only of foreign but domestic too.

Latest to join the bandwagon of companies that have expressed willingness to invest abroad, and not in India, is the Aditya Birla group.

A reportin the Business Standard has today said the group was planning to invest $1 billion to set up a chemical plant in the US to take advantage of the cheap gas prices and a reviving economy there.

“By investing in the US, our goal is to de-risk our businesses and take advantage of the global opportunities,” Aditya Birla Nuvo Managing Director Rakesh Jain has been quoted as saying in the report.

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[caption id=“attachment_1026411” align=“alignright” width=“380”]  India’s Aditya Birla Group Chairman Kumar Birla speaks during Forbes Global CEO Conference. Reuters[/caption]

With the economy there reviving, he feels the time is right to invest in the US.

According to him, Aditya Birla group’s fertiliser business, Indo Gulf Fertiliser, has been waiting for the government’s subsidy to make good for the losses it has incurred from selling its produce below the market price.

With the economic slowdown hitting the government finances hard, the company cannot expect a payout in the near future. This is what is driving the group abroad. The company does not want to depend on the government for any subsidies.

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Jain’s reasoning has to be read along with a few other similar recent developments.

Earlier this month, Apollo Tyres, which had acquired US-based Cooper Tire for $2.5 billion, said it did not have any capital expenditure plan for India, but “will focus on expanding operations in Serbia, China and Mexico over the next few years”.

The company’s Vice-Chairman & Managing Director Neeraj Kanwar was quoted as saying in a Business Standard report that the company need not spend on growth in India now.

True. The automobile sector is witnessing a crippling slowdown because of high cost of borrowing and general weakness in consumer sentiment. There is no reason to make any big investment in any of the related segments.

Prior to this, two global steel giants Posco and ArcelorMittal decided to not go ahead with one of their projects each in India. Apart from the general steel sector problems, delays in getting clearances for mining and land acquisition were the reasons behind their move.

The slowdown in the economy is for real. The RBI’s recent liquidity tightening steps have virtually pushed up the interest rates in an economy which is already slowing.

With retail inflation also near the 10 percent mark, a potential stagflationary situation is pushing any possible recovery backwards.

Business confidence is sagging, contrary to what Finance Minister P Chidambaram may want us to believe.

The writing on the wall was clear for the UPA to read. Over the last few years, when policy making was paralysed with various UPA ministers busy in one scam or the other, Indian companies have warned many a time that they are running out of patience.

“Because of lack of prudent tax and stable policies, all big Indian companies are going abroad,” YK Hamied, former head of drug maker Cipla, had told Business Standard in an interview last year.

“The time has now come for us to say goodbye to India,” he said. And this is indeed happening now. That too at a time when India is badly in need of investments.