India needs to remove bottlenecks: Singapore PM

Singapore Prime Minister Lee Hsien Loong during an interview to The Hindu in New Delhi. Photo: V. V. Krishnan   | Photo Credit: V_V_KRISHNAN

India is not as open for business as investors hope, says Singapore’s Prime Minister Lee Hsein Loong, citing land acquisition, over-regulation and legal hassles among the biggest bottlenecks.

“For trade to grow, India must make a strategic decision that you want to encourage interdependence and more openness and more trade-based economy,” Mr. Lee, who is on a five-day visit to India, told The Hindu in an exclusive interview.

“Your growth rate increased because India was prepared to open up the economy, loosen government control, enable investments and free up the “animal spirits” or entrepreneurship. So Tata, Infosys, Mahindra went all over the world. But you have to allow other countries to operate in India too. It cannot be a one-way exercise,” Mr. Lee said, in a sharp critique of the operating difficulties businessmen face when trying to set up industry in India.

While India and Singapore have stepped up contacts as a part of the Modi government’s “Look east, Act east” policy, bilateral trade between India and Singapore has declined year on year, down 11.2% in 2015-2016 to US $15 billion compared to 2014-2015, with Indian exports dropping 21.2% in a year.

In a reference to the court case that has now put on hold a Singapore consortium’s plans to build Andhra Pradesh’s showcase capital Amaravati, Mr. Lee said that Singapore was still hopeful of the project, to develop 6.84 sq km of the capital’s core area as a “smart city”, going through. Prime Minister Narendra Modi had laid the foundation stone for the city project in 2015.

“We are working on Amaravati, Andhra Pradesh. We did the master plan and we are bidding for the master developer contract. There is a [legal] process going on right now. We hope we get the contract and we will be able to help and show what we can do,” Mr. Lee said, ahead of the next Hyderabad High Court hearing set for October 31. A local builder has challenged the appointment of Singapore companies, Ascendas-Singbridge and Sembcorp Development Ltd.

A similar plan to build an industrial park in Gujarat was abandoned some months ago over land acquisition wrangles, officials said.

“I think if you look at the Singapore projects, we wanted to do industrial parks. They have taken very long to clear the issues of land and these become politicised and you can’t settle it, and eventually the project languishes and nothing happens,” Mr. Lee said, calling them “important issues that must be addressed.”

Mr. Lee said the bureaucracy had changed in terms of “will” and “direction” in the past few years. “I think Mr. Modi is trying very hard to change the ethos of the bureaucracy, and I wish him all success with that,” he added, indicating that red tape remains another big concern for his government.

The Singapore Prime Minister’s words are significant as the city state is the biggest source of foreign direct investment (FDI) into India. In the last financial year, it overtook Mauritius on FDI inflows, accounting for US$13.7 Bn, which was more than one third of all FDI coming into India.

As a result, Mr. Lee said, Singapore must not be treated on a par with other countries when it comes to negotiating tax regulations. In May 2016, India renegotiated its double taxation avoidance agreement (DTAA) with Mauritius to end “round-tripping” of black money from India, leading to speculation that the 2006 tax treaty with Singapore would also be amended so investors would no longer be able to avoid capital gains tax. The possible move has faced opposition from investors in Singapore, and Mr. Lee said that given the nature of investments, Singapore should be given special treatment.

“You have to understand that Singapore is quite different from Mauritius,” Mr. Lee said in his most direct comments on the tax treaty so far. “We know that India is very focused on the question of black money. It is a very high political hot subject. And we have been very careful in Singapore to make sure that the investments into India are legitimate ones that these are bona fide investments and there is no round tripping and there is no hot money or bad money which is being funnelled through Singapore,” he said.

After meeting with Mr. Modi on Tuesday in Delhi, Mr. Lee said they agreed to discuss the issue further, setting up a special team including Finance Minister Arun Jaitley and Singapore Deputy PM T. Shanmugarathnam. “[PM Modi and I] hope they can think out of the box and see how else we can work together on the issue.”

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