When Bangladesh is eagerly looking forward to higher inflow of Foreign Direct Investment (FDI), the statement of Indian envoy in the country is encouraging. In a meeting with the Foreign Investors Chambers of Commerce and Industry (FICCI) last week, Indian High Commissioner in Dhaka said Bangladesh is the new investment destination for Indian investors. He also said that Indian investors have been showing more interest in Bangladesh following the visit of Prime Minister Narendra Modi in June this year when a series of bilateral agreements and deals were signed by the two countries.
Although, for the last couple of years, FDI from India to Bangladesh has increased, the amount is still very low compared to both the country's total FDI inflow and India's FDI outflow. In 2014, Bangladesh received net FDI worth $1531.4 million (or $1.53 billion) of which only 4.42 per cent or $67.82 million came from India. On the other hand, according to UNCTAD World Investment Report-2014, Indian outward FDI stood at $9.84 billion last year. Thus Indian FDI in Bangladesh last year was only 0.69 per cent of the total Indian FDI across the world.
This, however, is not a very unlikely scenario due to various reasons. Compared to Indian economy, Bangladesh's is quite small. Indian investors are yet to find their next-door neighbour attractive for good return from investment. Trading, to be precise, exporting, appears more lucrative for the Indian businessmen as Bangladesh's manufacturing base is week. There is also a political dimension that discourages Indian investors to some extent. But things are changing for the better.
GLOBAL PENETRATION: Indian entrepreneurs have a long history of investing overseas, though at a slow pace at the initial period. Birla group is considered pioneer in this regard as it established a textile mill in Ethiopia in 1959 and an engineering firm in Kenya in 1960. In 1962, Shri Ram group opened an assembly plant for sewing machines in Sri Lanka which is probably the first Indian FDI in South Asia. The slow pace of overseas or outward investments from India continued till the '80s, mostly in small and medium size ventures. In a study paper Dr. Anil Kumar Kanungo, a former programme director of Indian Institute of Foreign Trade (IIFT), shows that in 1975-1990, Indian outward FDI stood at $220 million. India-based multinational corporations (MNCs) started to go for bigger foreign investments in the '90s and the trend continued in the later years. The stock of Indian overseas FDI was $12.4 million in 1991 which reached $1859 million ($1.85 billion) in 2000. And at the end of 2014, it stood at $129.57 billion.
In Bangladesh, during the '90s, Indian investment was negligible. The amount was $1.7 million, $1.66 million and $8.5 million in 1997, 1998 and 2000 respectively. The inflow in the first decade of 21st century was also very small.
BIG PROPOSALS, FAILED REALISATION:Â Bangladesh received the largest Indian FDI proposal from Tata Group in 2004. The Indian conglomerate proposed for investing $3 billion for a 1,000 megawatt gas fired power plant, a 500 megawatt coal fired power plant, a fertiliser plant with one million-tonne yearly production capacity and a 2.4 million-tonne steel mill to produce Hot Rolled (HR) Coil and other basic steel items.
Tata's investment proposal sparked hot debate in the country and many found it 'against the national interest' of Bangladesh.  Tata sought a guarantee of 20-year interrupted gas supply with a price offer of $1.1 for per unit gas in its initial proposal. In the revised offer, Tata proposed $3.10 for per unit of gas for fertiliser plant and $2.60 for steel plant. Some tax-break was also sought by the conglomerate. But the negotiation over guaranteed supply of gas with subsidised price and tax break failed and Tata Group finally called off its plan in 2008.
There was, however, both politics and economics behind the failure. At that time, Bangladesh's average annual inward FDI was only $600 million and the country didn't have any experience to deal with mega investment proposals. The smaller economy was also not prepared to absorb such a large investment. On the political front, Tata's proposal was considered 'aggressive' which sparked anti-Indian sentiment amongst various quarters. Still, there was scope for negotiation on piecemeal basis. Failure to do so was actually a setback for Bangladesh as Tata's presence could have given positive signal to other foreign investors.
Another set of investment proposals worth $2.9 billion was forwarded by the Mittal Group (based in United Kingdom but renowned as Indian conglomerate) in 2007. A memorandum of understanding (MOU) was also signed with the Board of Investment (BOI) to invest in coal mine development, oil exploration and production, power plant and petrochemicals. Nothing advanced later.
In 2012, Sahara Group came with a mega proposal to invest $12.5 billion in 2012 to develop real estate projects in Dhaka and five other places in the country in four years. The proposal lacked credibility as Sahara Group was already in trouble due to alleged misappropriation of clients' fund in India. Initially, a MOU to invest $100 million to develop a real estate project was signed with BOI. There was, however, no progress as the group was in legal tussle with Securities and Exchange Board of India (SEBI) and the group chief Subrata Ray finally landed in jail. Â
RENEWED INTERESTS: There may be a correlation between change in political regime in Bangladesh and rise of Indian FDI, as reflected in the official statistics (Table/Chart-1). During 2009-2014, total FDI from India to Bangladesh stood at $219 million while during 2001-2008, the amount was only $38.53 million. Since 2009, the government of Bangladesh has been taking a series of measures to address India's security concerns, offered generous transit to carry heavy machineries and equipment to Tripura for a power plant, eased multimodal transhipment facilities for goods in transit.    Â
The growing resilience of Bangladesh economy also contributes to attract Indian investment. The annual average economic growth rate has been over 6.0 per cent for the last decade. The country has now graduated to the lower-middle income league from lower-income status. To move ahead further, demand for better physical infrastructure is there. The middle-class is rising steadily and creating demand for consumer goods and services. Every year 2.1 million job entrants are adding to the labour force and looking for decent employment.
The change in Bangladesh economy has not gone unnoticed by Indian businessmen and entrepreneurs and some of them have come with direct and joint investments in selected service and manufacturing sectors. Bharti Airtel acquired 70 per cent stake in Warid Telecom, Bangladesh in 2010. It has also injected some $300 million in subsequent years and becomes Airtel Bangladesh. There are a good number of Indian investments in the ready-made garments (RMG) sector like Ambattur Clothing, a Chennai-based company that started operations in Bangladesh in 2007 and later set up its own manufacturing units through acquisitions. Helix Garment started commercial operation a decade ago. Consumer brands like Marico and Godrej have consolidated their position in Bangladesh. Indian tyre manufacturing giant CEAT has tied up with Bangladesh's AK Khan Group to form CEAT Bangladesh. Its product is likely to hit the market next year. In the budget for FY'16, the finance minister has offered fiscal incentives for motor car tyre manufacturing keeping the CEAT's investment in mind.
In fact, joint-venture appears to be a preferred choice for Indian entrepreneurs in Bangladesh as it provides wider business-to-business opportunities. They can also take the advantage of tariff-free access to developed markets like European Union, Canada, Japan, Australia and other developed countries. Geographical proximity is another advantage to bring capital machinery, raw and intermediate goods from India to Bangladesh.
CAUTIOUS OPTIMISIM: During the visit of Mr Modi, two Memorandums of Understanding (MoU) were signed to produce 4,600 megawatt electricity. Reliance Power signed MoU with BPDB to develop four units of power plants to produce 3,000 MW of electricity by investing $3 billion. The plants will burn natural gas. Adani Power will set up two coal-fired plants with a total capacity of 1,600 MW by investing $1.5 billion.
While Bangladesh needs more electricity in the coming days, it is not clear whether deals with Reliance and Adani will bring a good result. Adani, known as close to Indian Prime Minister, has been facing a lot of questions on its quick rise and its alleged environmentally damaging investments. Its plan to build one of the world's largest coal mines in Australia suffered a setback after a court in the country revoked the government's environmental approval for the $16.5 billion project. Â
In Bangladesh, there is now a hype going on for mega construction projects, be it power plant, highways or flyover. Some Indian conglomerates may find it lucrative. But without going for productive investment, no venture will be sustainable. Moreover, investment from India will not increase if the potential returns appear low and insignificant. In this connection, business-to-business tie-ups are very important. Involvement of the government may discourage Indian investment initiatives.      Â
asjadulk@gmail.com
Indian investment in Bangladesh: Are things changing for the better?
Asjadul Kibria | Published: August 07, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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