New Report from U.S. State Hammers another Nail into India’s Investment Reputation
This week,U.S. Secretary of State Tony Blinken will be in India where he’ll meet with Prime Minister Narendra Modi and Foreign Minister Dr. S. Jaishankar. The timing of his trip is not coincidental. Wendy Sherman, the no. 2 U.S. diplomat is in Beijing.
Washington’s focus on the importance of Delhi for geopolitical purposes is smart, but is ultimately doomed if India continues down a path that actively discourages foreign investment, and disregards the rule of law governing investor rights.
Take India’s treatment of Devas: the Indian government summarily cancelled its contract, dispatched its intelligence services to harass U.S. citizens and refused to pay multiple arbitration awards owed to Devas. This is emblematic of a larger pattern – the Modi government’s disregard for the rule of law governing investor rights. Other companies, including Cairn Energy, Vodafone and Amazon have all been on the receiving end of India’s bullying treatment – ranging from disregard for arbitration awards to weaponizing its tax and legal system against investors. Under Modi, India’s treatment of foreign investors rivals the behavior of Russia and Argentina combined.
A former Director-General of the British Chambers of Commerce, John Longworth, wrote recently for the Daily Telegraph about “India’s brute force behaviour” towards Western investors highlighting that India is “near the bottom of barrel in the global rankings of ease of doing business,” and adds that “without the core principles of rule of law and investment protection, the value of any UK-India trade deal which might emerge will be much diminished.”
New U.S. Report: India’s Investment Climate on the Decline
India’s reputation as an investment destination has taken another battering from the twin foes of reality, and data. The latest wakeup call comes courtesy of the U.S. State Department’s 2021 Investment Climate Statements report.
The report from the U.S. State Department doesn’t mince words writing India “remains a challenging place to do business” and the government should focus on “reducing barriers to investment and minimizing bureaucratic hurdles for businesses.”
On the issue of “Bilateral Investment Agreements and Taxation Treaties,” the report states, “India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. The Indian government also served termination notices for existing BITs with 73 countries.”
On the topic of international arbitration, the report states, “It is not unusual for Indian firms to file lawsuits in domestic courts in order to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983, and the latest case is that of Amazon Vs. Future Retail, in which Amazon also received an interim award in its favour from the Singapore International Arbitration Centre.”
The U.S. State Department report gets it exactly right.
This is the reality of doing business in India for foreign investors.
For shareholders of Devas, this is eerily familiar. Devas had a contract with the Indian government that was summarily cancelled. Devas pursued arbitration; India dispatched its intelligence services to harass U.S. citizens. Devas secured multiple international arbitral awards; India has refused to pay the compensation that is owed. Devas offered to negotiate; India put its government on a “war footing” and undertook an expropriation, seizing Devas’ property.
It appears the Modi government is now preparing these same tactics to go after Amazon – much larger than Devas. Does Prime Minister Modi and his inner-circle truly think that Washington – no matter the strategic geopolitical landscape – is going to look the other way? The tactics of a thuggish, authoritarian regime are becoming clearer for all to see.
Read more about investors’ risk in doing business in India here.
Read the latest on Devas case here.
Read the full timeline of the Devas case against Antrix and India here.