It is hard to escape the conclusion that some states of India are just not reliable enough business partners.
The Japanese auto maker Nissan has initiated arbitration proceedings against India, seeking about Rs 5,000 crore in tax incentives it claims the state of Tamil Nadu has not paid in the last couple of years. The merits of the case may need closer judicial examination before coming to a conclusion as a portion of the claim — Rs 2,100 crore — has to do with damages and interest charges. The point is Tamil Nadu, whose capital Chennai has become a major world automobile hub with several global giants locating their factories in the state, has behaved in such manner as to leave room for a dispute. This does nothing for the image of a country that desperately seeks foreign investments in industry as they come with considerable job generating qualities while also fulfilling the “Make in India” criterion dear to the Central government as a policy initiative best serving national interests.
Tamil Nadu may claim that Nissan is attempting pressure tactics to try and fast-track incentives so as to suit the foreign company’s viability of operations. But it would seem amateurish that at the time of signing MoUs a well-ordered system of incentives would not have been thought of. Would it not have made sense for both the parties to have agreed to a five per cent adjustment of incentive claims of an agreement spread over 20 years as the Nissan-Tamil Nadu MoU is? It is a known fact that while states go out of the way to seek investments as in global investors meets — to participate in which considerations are also suspected to be paid to political parties or personalities — some among them are not that good in keeping their word and delivering on promises. Invoking the Centre in the dispute may only complicate matters and it is best that Tamil Nadu, a huge fiscal deficit state, negotiates its way directly with an important car maker and exporter.
Nissan is not the only company that has initiated arbitration proceedings. There are currently 17 bilateral investment treaties claims, ranging from disputes over undelivered incentives, retrospective taxation and payment disputes. It is hard to escape the conclusion that some states of India are just not reliable enough business partners. Coupled with gigantic tax claims slapped retrospectively as was done against Vodafone and Cairn adds to the suspicion that while India woos investors its ardour is not sustained enough to ensure a smooth partnership in which there is long-term mutual benefit. While the bureaucracy is found to be too pedantic, the policy makers tend to toughen up their approach the moment a financial claim opportunity is spotted. Most disputes arise from a lack of attitudinal adjustment on the part of India. The scenario of disputes with foreign entities casts doubts on the improvement in the ease of doing business index in India. It’s high time the country had a dispute settling mechanism to handle such issues.