A recent headline in the New York Times read: As Ties With China Unravel, U.S. Companies Head to Mexico. With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand. Foreign direct investment in Mexico last year hit a record $35 billion. Despite many signs of promise, Mexico is still a country of vast differences in efficiency and education, where only a small minority of the population is adequately trained to compete with the world. Here we are talking about two neighbors in the region, economically integrated albeit at a basic level of free trade agreements, located within reasonable flying hours. Yet it took the US firms almost two decades to take advantage of Mexico’scost effective labor force. In the risk benefit analysis for Mexico as a potential investment destination, inefficiency and lack of education outweighed cost effectiveness of the labor pool. The decision to invest was eventually catapulted by the demand for higher wages by Chinese workers.
That brings me to the question of the foreign direct investment (FDI) scenario of the northeastern states of India in general and Assam in particular. Are we doing or preparing enough to attract the investment of foreign corporations? Are the words of a chief minister on foreign soils, promising the moon to investors really instrumental in persuading them? What has the other states like Orissa been doing to attract FDI when we lag so far behind? According to the business maps of India, Assam and the northeast states together attracted only 0.01% the total FDI inflow to India between 2010 and 2012. FDI is a scrumptious pie and every country, or in this case state covets a sliver, if not a piece of it. FDI brings in the mighty dollar to the host government’s coffers; it generates employment and facilitates knowledge and technology transfer to the host country. For the foreign investors, a potential FDI destination means two important incentives. There exists the potential for low-cost labor or/and there is a market to sell their products. Given the fact that Assam has poor infrastructure with erratic electricity supply, lack of good roads, bridges and a qualified labor pool; outsourcing of production to Assam is possibly not on the radar screen of the potential investors.
Reading through the investment website of the Assam government, one makes certain interesting observations. Joining the band wagon of the green movement and borrowing from the concept of what seems like China’s calculation of green GDP, the government proudly proclaims: “It lays emphasis on “Clean Development Mechanism” as an investment proposition. The new thrust would track the gains and losses of Assam’s natural capital including estimates for the values embedded in our fresh water quality, forest biomass carbons storage and carbon sequestration, bio diversity, bio prospecting, eco-tourism, timber and fuel and non-timber forest products. The new thrust also would track the gains and losses in our human capital including the values of education at all level and the future liability and health impacts of pollution.”That is a probable after – investment repercussion that the govt. seems to be trying to address. In my opinion, the bigger challenge of the moment is attracting FDI and not combating the after effects of setting up a factory.
Trading, particularly mercantilism, benefitted from the political diversity in India. When the British discovered “Fanap” in Assam, they hit the jackpot. There were no trade barriers, no concept of FDI for mutual benefit. A colonial power simply conquered a foreign land, grew tea by exploiting the locals and traded it all around the world. The odds were always in their favor.Hence they came. Foreign direct investment, on the other hand, is a two-way street. The home country and the host country both have interests and benefits at stake. Therefore, Assam’s government must play an active role to assure the investors that their interests will be served without sacrificing their own. Simply listing the investment scenarios won’t achieve that end. Only if Assam builds it, they will come to build it bigger.
To the credit of the government, they are trying. But listing what the government feels are right information won’t cut it.Firstly, the government must have a proactive and corruption free set up.Secondly the claim to having a skilled and educated labor force must be substantiated by current and relevant data. It is very hard to find statistics on the level of education that has been attained or what kind of skills that the government talks about. Thirdly, Assam government may be working towards an efficient transportation and communication network; but to claim that power and water supply is consistent is farthest from the truth. Life still comes to a standstill every time there is a big spate of rain, yet the irony is, Assam I no stranger to rain.At 12.9% urban population, the claim to a large consumer base also falls apart.
Globalization is a positive-sum game. It is theoretically a win-win situation for both the parties involved. But it also entails taking huge risks for the investor.Their return on investment must be alluring enough for them to ignore certain risks and costs. For the host government, it means taking a systemic approach and assuming accountability. The technological advancements of the recent years rendered the globe smaller in all conceivable way, except its size, and have paved the way for instantaneous exchange of ideas, knowledge and, most importantly money. Only if the Assam and the North eastern states raise their ambitions, will they reach their full potential. Assam needs to take on the difficult jobs of building infrastructure, rooting out corruption and clearing the tangle of government regulation that is still holding the state back. And they should address it all with a sense of urgency. Subsidy on power tariff will act as a lure only when power is ensured.