The Hindu : Graft keeping investors away from India: U.S. official

Online edition of India's National Newspaper
Saturday, Nov 23, 2002

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Graft keeping investors away from India: U.S. official

By Our Special Correspondent

NEW DELHI NOV. 22. The U.S. Treasury Secretary, Paul O'Neill, today described India as one of the most restrictive countries in the world, even while condemning its record on the governance front. "Corruption and bribery are widespread, frightening away honest businessmen and investors," he said.

Making a comparison between foreign investment flows in India and China, he insisted that the country could achieve China's level of foreign direct investment by making changes in policies and procedures. In a harsh comment on the investment environment in the country, he said many large companies invested but many others have stayed away.

"Respect for property rights and protection against public or private thievery is an essential requirement for economic success," he said.

Addressing an audience of corporate leaders under the auspices of the Confederation of Indian Industry (CII) and the American Chamber of Commerce in India (Amcham), he said this was not merely a matter pertaining to foreign investors. Domestic savers were the greatest source of investment for any economy. "A nation that does not respect ownership deters its own citizens from putting their money to work in the economy through bank deposits and capital markets instead of hiding their precious savings under the floorboards," he said.

Replying to questions, Mr. O'Neill stressed that he understood the problems of poverty and the rural agricultural focus in India as he came from a poor family in the U.S. To highlight this point, he recalled that he even lived in a house without running water and electricity.

Describing himself as a "blunt businessman", the former chief executive of Alcoa Corporation said a world without trade and tariff barriers would lead to a rise in global GDP by two trillion dollars. In contrast, he said average import tariffs in India are over 32 per cent and over three times higher than many other Asian economies. This did not include the many "hidden obstructions" to free flow of goods across the borders. "Various indices of trade and investment restrictions rate India among the most restrictive countries in the world," he said.

He urged India to build up trade with its neighbours, pointing to the fact that barriers to enhanced trade on the subcontinent remained very high. Just as Canada and Mexico are the largest trading partners of the U.S., he felt India's trade with its closest neighbours should be equally strong.

While conceding that India had come a long way since independence, moving from a command economy to a more market-based system, he felt economic freedom had not yet sprouted in many major industries where the Government remained deeply involved in production which limited competition and in turn curbed innovation and growth.

Legal restrictions on market entry and onerous regulations also prevented private sector dynamism. He described the country's fiscal policy also as "weak" with a federal deficit exceeding five per cent of GDP last year and State deficits another 4.5 per cent of GDP.

The Treasury Secretary who is here to attend the on-going Group of 20 ministerial meeting, argued that unreasonable regulation also deterred international business and local entrepreneurs from entering new markets and creating value.

"No one wants to spend time and capital fighting a system that is unfriendly to success and fears competition," he said, referring to the cellular phone industry as an exception where demand rose and prices fell when regulations were lifted.

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