Perhaps one of the first priorities of the new government in India will be to allay the concerns of foreign and domestic investors over the business environment. Investment decisions in the country have been impacted due to a heightened sense of uncertainty and policies such as retrospective taxation, especially during the past couple of years.

UK telecommunications giant Vodafone has made big-ticket investments in India, totaling $26.3bn in acquisitions and capital expenditure. But, in April 2014, it slapped an arbitration notice on the government over a disputed capital gains tax claim of $2.6bn, which dated back to its acquisition of the the telecoms assets of Hutchison Whampoa, which Vodafone bought when it first entered the Indian market seven years ago.
British Petroleum (BP), Reliance Industries and Canada’s Niko Resources have also sought arbitration over delays in implementing a revision of natural gas prices. BP was one of the largest foreign investors in India in 2011, when it paid $7.2bn to acquire a 30% stake in Reliance’s Krishna-Godavari gas field in the Bay of Bengal. Reliance and its two partners were expecting a new rate for natural gas on April 1, after the expiry of an earlier rate that was fixed for a five-year term. Although the cabinet of the outgoing government approved the hike, and even notified it on January 10, the announcement of the new rate is yet to be made.
There are several other foreign companies that have sought arbitration to resolve their problems in India. The next in line might be Finland-based phone manufacturer Nokia, which is currently caught up in a $348m tax dispute with the government, which might balloon to $3.5bn, including interest and penalties if it loses the case. It was stopped from transferring its mobile handset assembly facility in the southern state of Tamil Nadu as part of its $7.2bn deal to hive off its handsets business to Microsoft.


In March, France-based shipping services and maritime transportation company Louis Dreyfus Armateurs also filed a notice over its troubled investment to modernise berths at the Haldia Port in the state of West Bengal.
The timing of Vodafone’s and BP-Reliance-Niko’s notices are clearly intended to signal to the new government that it needs to clear the stumbling blocks faced by foreign investors that seek a larger profile in the country and to speed up decision making. Top of the order will be reversing the retrospective amendment introduced in the Finance Bill of 2012-13, which allowed the revenue authorities to reopen previously closed cases going back to 1962. This was clearly targeted at Vodafone, as the Supreme Court had previously ruled in its favour that its acquisition of Hutchison’s stake was not taxable in India.

Overturning this amendment would improve confidence among foreign investors in the country. The new government is also expected to fast-forward economic reforms, especially in the area of infrastructure, including oil and gas exploration, to make India more attractive for FDI.
N Chandra Mohan is an economics and business commentator based in New Delhi.