Flights abroad

It has long been assumed that our private sectors innovation,investment and entrepreneurship will keep the India growth story buoyant. Yet,over the past year or so,a significant reversal has taken place not in the private sectors fortunes or in its drive and ambition,but in its relationship to the global corporate world. Historically,investment has been inbound,with foreign capital looking for investment opportunities in a fast-growing economy; but now,the total value of outbound acquisitions has shot up six times,to 3.7 billion in the quarter ending September. Inbound deals,meanwhile,remained at 1.2 billion,close to the number last year.

There are several reasons why emerging-market companies invest abroad. An acquisition in the first world is the best way to move up the value chain,and get closer to your eventual customers. According to the World Bank,the share of emerging-market companies in international mergers and acquisitions rose to 17 per cent between 2003 and 2010,as compared to 4 per cent in the previous seven years. That is part of the reason why Tata would,for example,purchase in Jaguar-Land Rover: building a brand is even tougher if you are an emerging-market company. But to imagine that all of Indias outbound investment is a product of the natural expansion of its companies would be absurd. It is much more than that: it is a search for better regulations,a more business-friendly environment,and for resources that Indias sclerotic regulatory process denies its companies.

Consider the obstacles in the way of an Indian producer who wishes to expand. The first and the biggest,now is finding suitable land. Where will they get a plot large enough,well enough connected to its markets and its raw materials,and uncontested politically? Then there are questions of basic infrastructure: water,electricity,etc. There is no telling that it wont be an endless back-and-forth for environmental clearances. And all that without even thinking about Indias archaic labour laws. The reason that Indias companies are looking abroad is not because they have come of age,that they need to move up the value chain,that they are better managers than everyone else. The reason they are is because there is simply no way they can expand in India a sign of the threat that the India growth story is under.