Economy

A Tale of Two Investment Stories Marked by Troubling Setbacks

Developments in Tamil Nadu and Andhra Pradesh highlight why it is so important for governments to foster the trust of global investors.

The defunct Nokia factory at Sriperumbudur near Chennai is set to return to life once again under a new owner. Salcomp, another Finnish firm, has acquired the handset maker’s plant for close to $30 million.

While a welcome development, the transfer of the plant between the two Finnish firms in fact brings the curtain down on an ugly dispute in the wake of a tax notice served on Nokia in 2013. The episode not only caused avoidable hurt to India and Finland’s relationship, it also sent out a negative signal to global investors.

With Salcomp buying the Nokia plant, the dispute saga may recede into the background.The Salcomp-Nokia deal is ostensibly facilitated and blessed by both New Delhi and Helsinki. Salcomp, it is gleaned, will begin operations at its newly-acquired plant by March 2020. Informed sources suggest that the company, one of the biggest charger makers in the world, could invest up to $300 million in the plant over the next five years. Once fully functional, it could provide jobs to 10,000 people. Salcomp’s unit at the Special Economic Zone in Sriperumbudur is already reportedly running a headcount of 7,000.

Much water has flowed under the bridge since the handset maker Nokia set up shop in Sriperumbudur in 2006 and shut down in 2014. Indeed, in the last five years, global trading dynamics have undergone a major metamorphosis.

Multiple blows to TN

From a micro perspective, the acquisition of the Nokia unit by Salcomp must please the ruling political mandarins in Tamil Nadu, coming as it did at a time when the industrial scene in the state hasn’t really seen any new entrant of worth in the distant past. It must also be viewed in the context of a prestigious defence joint venture project, in which a Russian company skipped Tamil Nadu to open shop at Amethi.

The unresolved imbroglio at the Sterlite Copper plant in Thoothukudi, the protests against multinational companies such as Pepsi earlier when the pro-Jallikattu agitation took a different twist and Indian Premier League matches being shifted out of Chennai a couple of seasons ago have all combined to form a question mark over Tamil Nadu as a destination of choice for investors.

Since Salcomp is already present in the Sriperumbudur belt, it is logical for it to acquire the defunct unit in the adjacent locality to expand its production base. It makes a lot of business sense for it to do so and this will likely bring some cheer to the ruling political class here, given the job opportunities it opens up in the region.

The Salcomp move, however, must also be read in a larger context. An understanding of it could give a clue or two on the visible shift that is taking place in the global business environment in the wake of escalating trade tensions between the US and China. With each one taking aggressive positions, the Washington-Beijing spat is forcing  global businesses to reconfigure their strategies.

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There is a definite realignment in global supply chain manufacturing. And the ever obvious de-risk attitude is presenting immense possibilities for many a nation aspiring to woo foreign direct investment. Local industry leaders have argued that the US-China trade war has opened up a limited time-bound opportunity which India must quickly grab. The Centre too saw merit in the argument and dropped tax rates to stay competitive with other investment-seeking countries such as Thailand, Vietnam and the like. It will not be entirely off mark to view the Salcomp move in this emerging framework.

Salcomp, significantly enough, is a major supplier of chargers to iPhone maker Apple. The ongoing trade tussle between the Donald Trump administration and Beijing has, perhaps, made Apple apply the brakes in China and take a diversion. The iPhone producer is beefing up its presence in India, with an eye on both domestic and global markets. Most of its component suppliers have set up base in India.

Salcomp’s latest move is indeed in sync with the Apple game plan. Not just that – it also sort of fits into New Delhi’s quiet effort to reap benefits from the US-China trade conundrum.

In Andhra, a sorry picture too

The Nokia episode, nevertheless, is an indication of the level of problems in manufacturing in India. There are still quite a number of unfixed issues cutting across regulatory, policy, law and political domains. If the Salcomp move is a case of coming events casting their shadows before them, the happenings in Andhra Pradesh under the leadership of Jagan Reddy are sending out confusing signals to the global investor community.

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A Singapore consortium and the Andhra Pradesh government, by mutual consent, have cancelled the proposed multi-billion-dollar capital city Amaravati project. The capital city, initially estimated to cost 15 billion Singapore dollars, was the brainchild of former chief minister N. Chandrababu Naidu, who lost power in the recent elections.

Singapore’s Ministry of Trade and Industry (MTI) had said that the decision was based on mutual consent between the Andhra Pradesh state government and the Singapore consortium, comprising Ascendas Singapore, which is now a part of CapitaLand Group, and Sembcorp Development. The Andhra Pradesh government said it had decided not to proceed with the project “given its other priorities for the state”. The Jagan Reddy government has also cancelled the land allotted to the UAE-based Lulu group, which had decided to invest Rs 2,300 crore in Andhra Pradesh by building an international convention centre, shopping mall and a five-star hotel.

The planned Amaravati city. Photo: Twitter

In fact, hours after it assumed office, the Y.S. Jaganmohan Reddy government announced the cancellation of all projects sanctioned prior to April 1, 2019 by the previous Naidu government but work on which was yet to take off. Settling political scores is one thing. But what the Reddy government has done could cause enormous damage to not just the cause of Andhra Pradesh, but the efforts of the country as a whole to emerge as a desirable investment destination for global capital. These actions could not have come at a worse time. The economy is on a deceleration path, and consumer confidence is dipping.

Top industry sources concede quietly that the actions of the Jagan Reddy government is hurting business, in general, and confidence, in particular. When the trust disappears, investors stay out for good. There are enough mechanisms available within the system to set right wrongs, if there are any. Adopting extreme positions, however, will only widen the trust deficit.

If businesses feed on trust, the responsibility lies with governments – both at the Centre and in states – to foster it and ensure its continuity.

K.T. Jagannathan is a senior business journalist.