Indian rule changes spark concern among Japanese investors
India's attractiveness to Japan investors could be hit by concerns over rule changes by India's Reserve Bank that apparently overturn agreed contracts, reports N Chandra Mohan.
The arbitration dispute between Tata Sons and erstwhile telecom joint venture partner NTT DoCoMo is overshadowing India’s growing attractiveness for Japanese FDI. At the heart of the complex dispute is the sanctity of contracts, which is non-negotiable for foreign investors.
After a three-year fight, the new chairman of the Tata Group, N.Chandrasekaran, indicated the group’s willingness to settle by buying back DoCoMo’s 26.5% stake in a failed mobile phone venture. In 2016, the London International Arbitration Court asked the Tatas to pay $1.18bn to DoCoMo, which then filed for the enforcement of award in the Delhi High Court. But on March 8, the Reserve Bank of India told the court that Indian rules bar foreign investors from exiting at a prearranged price.
Japanese investors are concerned about abrupt changes to India’s rules as NTT DoCoMo had invested according to these rules. “I am worried the abrupt change in those [rules] by the RBI could make the Japanese private sector look at DoCoMo case sympathetically,” said Japan International Cooperation Agency’s chief representative, Takema Sakamoto, according to India’s Business Standard.
Also of concern to Japanese investors is another high profile dispute between the promoters of Indian pharma giant Ranbaxy Laboratories and Daiichi Sankyo. Daiichi acquired Ranbaxy in 2008 for $4bn but later sold it after Ranbaxy had to pay a huge fine to the US Food and Drugs Administration.
In April 2016, a Singapore tribunal awarded $385m to be paid to Daiichi because the promoters had concealed or misrepresented information regarding USFDA and Department of Justice investigations when selling Ranbaxy. The promoters appealed against this order in the Delhi High Court, saying “substantive objections” exist under Indian arbitration law to make the order unenforceable.
These adverse developments come just as India has begun to attract larger investment from Japan: equity inflows from Japan rose fourfold to $4.2bn in April-December 2016, compared to $1.1bn in April-December 2015, according to the Department of Industrial Policy and Promotion.
N Chandra Mohan is an economics and business commentator based in New Delhi.
The fDi Report 2016
Most popular content
Crossborder investment monitor
fDi Markets is the only online database tracking crossborder greenfield investment covering all sectors and countries worldwide. It provides real-time monitoring of investment projects, capital investment and job creation with powerful tools to track and profile companies investing overseas.
Corporate location benchmarking tool
fDi Benchmark is the only online tool to benchmark the competitiveness of countries and cities in over 50 sectors. Its comprehensive location data series covers the main cost and quality competitiveness indicators for over 300 locations around the world.
fDi Intelligence provides customised reports and data research which deliver vital business intelligence to corporations, investment promotion agencies, economic development organisations, consulting firms and research institutions.Find out more.