Edinburgh to Ernakulum: Strategies for wooing investors

Through “Global Investor Meets”, State governments compete with each other every year to show-case themselves before the investor community and the elite, thereby giving the indication that employment promotion through new investments stands out as their policy plank.

In the early part of the present century, the economic cold war between Gujarat and Maharashtra led to a search for new strategies of attracting investments. In 2003, the then Chief Minister of Gujarat, Narendra Modi, came up with the idea of ‘Vibrant Gujarat’ as an experimental project, offering a meeting place for potential investors. Various State governments including Kerala, Tamil Nadu and Punjab followed the path. Today, most States in the country organise “Investor Meets” periodically.

The Department of Economic Affairs (DEA), Ministry of Finance, has been conducting various road shows and investor meetings within and outside India, with a view of providing sufficient clarity to potential investors and to improve their interests for participating in India’s growth story. The Ministry has created a common service point to help the initiatives by the States as well. Besides, as part of the “Start-up India” and “Make in India” programmes, such meets have been supported by the DPIIT. Hence, beyond the political vision and programme of the States concerned, such Meets are part of a national agenda of investor facilitation.

International experience

While today State governments organise ‘Investor Meets’ on a regular basis, and make competitive claims on their positive outcomes, an enquiry into global practices would be educative and useful.

Historically, I can trace it back to the history of the ‘Business Birth rate Strategy’ (BBRS) that was implemented in Scotland in the 1990s. The BBRS was started with an over-arching aim of making Scotland one of the most entrepreneurial destinations in the world. It had the specific objective to close the start-up gap with the southeast of England. While only one percent of people in Scotland were committed to starting a business, it was 4% in the south of England. The Scottish experiment was often criticized those days as “wasting public money”. Despite all such criticism, the strength and contribution of the BBRS was the ‘campaign mode’ under which it was implemented, and its ability to mobilize all major stakeholders such as leading universities, industry associations, promotional agencies, media, and financial Institutions under a single umbrella that was set up by a powerful nodal agency, the Scottish Enterprise, in 1994.

Subsequently, when in 2016 the Industries & Commerce Department of the Government of Kerala approached me requesting a comprehensive study on the investment scene in the State, I had no hesitation to recommend a “campaign mode” intervention in the State, on lines of the Scottish Model.

Investment promotion strategies

Development of entrepreneurship and MSMEs is a state subject in India. Therefore, the national policy regime has only a restricted role and background. Though the States are expected to make good use of such a background, this does not often happen. Rather than creating regional success stories to be show cased at the national level, the States often compete against each other in favour of national rankings and fund flows.

The results accruing from State level efforts need to be scientifically understood at the national level, as each State is a stakeholder at the national level in the development process. This is the rationale for national level ranking of States, originally done under the ‘Ease of Doing Business’ (EoDB) ranking, and subsequently under the new regime of the Business Reforms Action Plan (BRAP). These rankings are based on the value of an index; it can act as an information tool at the national level, but it does not tell the full story. Available literature shows that, in the race to become topper at the national level ranking, various State governments follow their beaten-track strategies, neatly repacked.

Yet despite their drawbacks, such rankings act as a method for reputational incentivisation that has a crucial role in a democratic federal system.

Beyond hype, the content matters

Index numbers, while useful for tracking trends, have limitations, considering the qualitative aspects of the variables chosen. Therefore, they can, at best, be used as approximate indicators rather than as precise measures. Ultimately, market-friendliness is the acid test of investment resilience and the sustainability of individual States. Public policy interventions, such as Investor Meets, need to be contributory and supportive to creation of such a market-friendly environment. An analysis based on ‘Udyam’ data shows, such a reasonable balance in seen in the case of States such as Gujarat, Telangana, Odisha, Punjab, Kerala and Uttaranchal.

Beyond administrative reforms

The demand for business-centric reforms often arise from an elite business community. Their interests are often not representative of that of the larger electorate. This conflict of interests is obviously the ground for corruption and unfair business practices.

Investment promotion, in essence, means private sector development. Private sector development means fostering a vibrant and fair market system that creates economic opportunities and drives sustainable growth. This essentially means sound economic governance, for which a country like India still has to travel a lot. In developing and emerging economies, a necessary first step is a ‘rights-based approach’, which holds institutions and powerful people accountable for their responsibilities to those with less power. Such an approach differs from a ‘needs-based’ or ‘welfare’ approach that create dependency on development agencies.

For this to happen, there need to be new reforms and legislations that can add value to every subsequent Investor Meet. This will help to enhance investor confidence and foster genuine competition between States.

(The author is a Senior Fellow & Director at the Institute of Small Enterprises and Development)