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Mon 6 Jan 2020 02:15 PM

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Why rising violence could hit foreign investment in India

Industry chambers say there are indications that foreign governments and investors are slightly apprehensive about the current developments in India

Why rising violence could hit foreign investment in India

The JNU incident is also expected to lead to renewed protests across the country by student communities, civil activists and opposition political parties, with Indian industry apprehending troubled days ahead for movement of goods and raw materials, adversely affecting sales and revenues. Image: STR/AFP/Getty Images

India’s prestigious Jawaharlal Nehru University (JNU) in Delhi witnessed total mayhem and violent attacks on students and teachers by masked hooligans on Sunday evening, which many political and foreign affairs observers believe will sully the country’s image internationally and impacting foreign investments into the country.

The JNU incident is also expected to lead to renewed protests across the country by student communities, civil activists and opposition political parties, with Indian industry apprehending troubled days ahead for movement of goods and raw materials, adversely affecting sales and revenues.

“There are indications that foreign governments and investors are slightly apprehensive about the current developments in India,” a senior official with a leading industry chamber told Arabian Business. The official did not want to be identified because of the sensitivity of the issue.

“Most of the countries, especially countries which are major investors in India, are currently monitoring the situation (in India),” the chamber official added.

“It (impact on foreign investments) will depend on how fast and effectively the government tackles the current situation, especially that related to law and order,” a senior official with another leading industry chamber, has said, adding that only if the current situation continues unabated for a long time, foreign investors will get jiffy”.  

Former foreign secretary of India Shivshankar Menon has said internationally, the perception of India has changed after the controversial amendment to the citizenship law was passed.

“The government's amendment to the Citizenship Act was a self-inflicted goal which has isolated India and resulted in the country being hyphenated with Pakistan as an intolerant state,” Menon, who was also the National Security Advisor (NSA) to the previous Congress-led federal government in India, told reporters.

Policy makers and observers see the changing perception internationally adversely impacting foreign investments in India.

“Perception about a country is a major factor in investing in that country,” Ashok Jha, former federal finance secretary, told Arabian Business.

“With projections of economic growth being around 4.5 - 5 percent in the October-December 2019 quarter, coupled with the previous quarters 4.5 percent GDP growth (gross domestic growth), the attractiveness which the Indian market used to hold for foreign investors have also been impacted,” Jha added.

Industry analysts said the on-going wide-spread protests and deteriorating law and order situation at many places in the country could lead to an increase in the country-specific risk premium for India.

“Country risk will have to be factored in for any foreign investments and to that extent, foreign investors may be on a wait and watch mode now,” a senior finance executive with a MNC, who did not wish to be identified, told Arabian Business.

Industry insiders said though everyone is anxiously watching how the current situation (protests) will pan out, so far there are no concrete moves to holdback investment plans.

“In any case, there are no major investment plans on the anvil currently,” the chamber official has said.

India received $14.06 billion FDI (foreign direct investment) in the July-September 2019 quarter, $2.24 billion down from 16.3 billion in the previous quarter, according to government data.

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