New
Delhi/Mumbai: Frustrated by a lack of opportunities in India,
Germany's Fraport, the world's No 2 airport operator, is shutting its
development office in the country, the latest in a growing list of companies
exiting Asia 's third-largest economy.
Regulatory
uncertainty and policy gridlock have battered foreign corporate sentiment
towards India ,
adding to a dramatic slowdown in economic growth and exacerbating a widening
current account deficit that has knocked the rupee to record lows.
"When
we came to India
in 2006, we were actually extremely bullish about the market. We felt India had a lot of potential at that time,"
Ansgar Sickert, who heads Fraport's India operations, told Reuters in a
telephone interview on Friday.
Government
plans then to privatise dozens of airports in smaller cities have not come to
fruition.
"We
were disappointed when none of these opportunities materialised," said
Sickert.
Many
foreign companies in other sectors have seen their India plans thwarted by sluggish or
inconsistent policymaking under the embattled government of Prime Minister
Manmohan Singh.
The
list of companies to leave India
includes telecom carriers Etisalat of Abu Dhabi and Bahrain Telecommunications
Co, whose licences were among those ordered cancelled by the Supreme Court amid
a corruption probe.
Another
firm, Norway 's state-backed
Telenor, which has invested roughly $2.5 billion in India and had its licences ordered
cancelled, has threatened to pull out but is lobbying through diplomatic
channels for favourable rules and to lower the price of airwaves to be
auctioned.
"India
definitely faces the threat of more foreign companies signalling an exit in the
near future, as well as warding off new entrants unless it sends a very strong
and immediate signal to boost foreign investor confidence, said Bundeep Singh
Rangar, chairman of London-based IndusView Advisors.
According
to a Nomura report last month, multinationals pulled $10.7 billion out of the
country in 2011, up from $7.2 billion in 2010 and $3.1 billion in 2009.
To
be sure, that's far less than inbound corporate investment, which surged 88 per
cent to a record $36.5 billion in the year that ended in March, according to
official data, fuelled in part by two multi-billion-dollar energy deals.
Tough
times
Singh's
government has been weakened by fractious coalition partners and a spate of
scandals, undermining its reform agenda.
Ongoing
battles over taxes on foreign companies, regulatory flip-flops and a lack of
progress on key reforms have kept many foreign companies away and led others to
scale back.
In
a cautionary tale that has turned into a soap opera, UK mobile phone giant
Vodafone, India's biggest foreign investor, is fighting a multi-billion-dollar
tax demand and frequently spars with regulators over telecom rules.
"Ever
since then, India Inc's image abroad has taken a hit because it has basically
made multinationals wary of India
because of lack of predictability and certainty," said Rangar, referring
to Vodafone's tax case.
Vodafone
has vowed to stay in India, but other companies - including New
York Life and US
mutual fund giant Fidelity Worldwide Investment recently sold their India units.
Augere,
which owns 4G broadband airwaves in one of India's 22 telecoms zones, has
stopped operational activities and is set to sell its airwaves due to
regulatory uncertainties, the Economic Times reported last month.
More
exits are expected in the crowded insurance industry, where a long-expected
increase in foreign investor holdings has been stuck and where many joint
ventures are losing money.
The
mutual fund sector, where a regulatory change banning distribution fees as well
as a sharp drop in markets have led to a drop in profits, is also seen to be
poised for exits.
"Things
are not happening at the required pace, so that has been the basic
problem," said Soumya Kanti Ghosh, a director at the Federation of Indian
Chambers of Commerce and Industry.
"We
believe that if that is not taken care of, it will be very difficult to get the
message to foreign investors that we, the government, are serious about
carrying out the reforms agenda," he said.
Fraport,
which owns 10 per cent of the company that operates New Delhi Airport, is
looking to sell that stake to a partner as its role as an operator will lapse
in May 2013, meaning the company would not have a presence in India, one of the
world's fastest-growing airline markets.
The
government, scrambling to kick-start investment, this week announced a push in
the infrastructure sector, including plans to develop three airports. Sickert
said recent signs are encouraging, and Fraport still sees India as a
potential market.
"To
be honest, there is some scepticism at the moment, given the coalition
constraints, that these projects will materialise within the timeframe the
government has mentioned. We are still a little wary about that," he said.
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