Sanjaya Baru writes: Bangladesh crisis underlines the necessity of political risk management

It has been reported that Prime Minister Narendra Modi has been encouraging Indian companies to invest overseas and emerge as global corporations. Even before securing any such official support, several major firms have been investing overseas partly to secure access to global markets and partly to de-risk the Indian environment. Few, however, have made any significant investment in assessing political risk, beyond hoping the home government would bail them out in difficult times.

Such dependence on the home government for dealing with overseas political risk itself constitutes a political risk. What happens when the political leader in government who guarantees protection overseas is himself replaced or no longer able to keep his word? Does a company board evaluate this risk when approving a proposal to venture out under such domestic political protection?

When a global company operating in India found itself exposed to a change in domestic laws, it chose to go to court. Some people advised the company’s global boss to approach the newly-appointed minister responsible for the change of policy. Having that kind of information and knowing how to get to the person is also risk management. This, too, requires feet on the ground and eyes and ears where possible.

Those investing in developed economies depend on the latter’s more predictable policy environment, not worrying too much about political risk. Though, even there, Indian businesses have had to grapple with domestic politics. Lakshmi Mittal, for example, had to deal with European politics in his bid to take over the cement MNC Arcelor. Infosys has had to convince American politicians that it is creating wealth and employment even in the US and not just in India.

Political risk management by Indian firms has ranged from “playing golf” with “persons that matter” in the overseas investment destination, to securing “political protection” in that country or “consulting the Indian ambassador”. Indian business leaders are quite adept at securing political protection overseas given the long years of experience at home. Diplomats have found an avenue for post-retirement employment, working for companies that have investments in countries where they have been posted. The lack of adequate demand for political risk insurance has not encouraged and developed this line of consulting adequately at home.

In creating the geo-economics and strategy programme at the International Institute of Strategic Studies a decade ago, I tried to explore the Indian corporate market for overseas political risk assessment and discovered that most business leaders were satisfied investing in building personal relations with “those who matter” in the relevant country. Over the past decade, many Indian business groups have funded research institutions and think tanks that study the global economy and politics. However, their focus is mostly on national security, foreign policy and bilateral relations rather than country-specific economic and political risk.

They have much to say in their working papers and newspaper columns on what governments say and do, on what they should or should not do and very little on offer for CEOs and board rooms on country-specific risks to Indian business. The irony is that both in government and business, most believe they have little use for such “academic” research. There have been intermittent efforts at promoting area studies and country-specific expertise but few undertake country political risk.

An important institution that has often filled the information gap for corporates between what may be regarded as purely “academic” research and “agenda-based” advice from governmental functionaries has been the media. Foreign correspondents are an excellent source of information that could feed into political risk assessment. There is, in fact, a long history of such a role being played by foreign correspondents with many distinguishing themselves as experts in area studies. This important source of overseas risk assessment is hardly available in India since few media companies invest in foreign correspondents.

In the past, when a few newspapers did appoint correspondents in neighbouring countries, some of the journalists became important sources of information on that country. What they could not or would not put on paper they would convey to diplomats and spooks. This has happened the world over, which is why foreign correspondents are sometimes viewed as quasi-spooks. No government likes such quasi-spooks but every government makes use of them.

Foreign governments and businesses dependent on mainstream Indian media’s coverage of the general elections in India were less prepared for the final result than those who paid attention to what some foreign correspondents were writing. Here, too, the Union government’s treatment of “difficult” foreign correspondents put many others on alert, limiting the freedom with which they could express their views on domestic politics, further contributing to the “surprise” downsizing of the BJP.

Given that both the government and individual firms are serious about overseas investment, they must facilitate the growth of area studies and expertise in the internal politics and policy of countries of interest and importance. It is not enough for think tanks to focus only on the foreign policy of other countries. They must also invest in developing local expertise in the domestic politics of countries where they intend to place their shareholders’ money.

If the kind of reporting that has been done out of Dhaka over the past fortnight by Indian media was done in the fortnight preceding Sheikh Hasina’s exit, many Indian firms, as well as the government in Delhi, would have been better prepared to deal with the sudden turn of events.

The writer was Member, National Security Advisory Board of India, 1999-2001 and media advisor to Prime Minister of India, 2004-08