SPEECH DELIVERED BY HON'BLE MR. JUSTICE
VIJENDER JAIN, CHIEF JUSTICE, PUNJAB AND HARYANA HIGH COURT, CHANDIGARH,
ON THE OCCASION OF A SEMINAR ON "INTERNATIONAL LAW ON FOREIGN INVESTMENT"
HELD AT CII NORTHERN REGION HEADQUARTERS, CHANDIGARH ON 26.09.2007.
In the years after the Second World War global FDI was
dominated by the United States, as much of the world recovered from the
destruction brought by the conflict. The US accounted for around
three-quarters of new FDI (including reinvested profits) between 1945 and
1960. Since that time FDI has spread to become a truly global phenomenon,
no longer the exclusive preserve of OECD countries.
FDI has grown in importance in the global economy with FDI stocks now
constituting over 20 percent of global GDP.
India is now the third most favoured
destination for Foreign Direct Investment behind China and the USA.
It is widely accepted that customary law
provides only very weak legal standards for foreign investment.
Bilateral investment treaties, on the other hand, exist in
the large number and are of tremendous importance.
BITs are of great interest because they represent a solution through
public international law of what is, essentially, a private international
law issue-offering a solution to the problem of contracting between
investors and the host states. A contractual solution (including through a
BIT) is, therefore, a more efficient rule for the regulation of foreign
Investments which seek to acquire factors
of production that are more efficient than those obtainable in the home
economy of the firm. In some cases, these resources may not be available
in the home economy at all (e.g. cheap labor and natural resources). This
typifies FDI into developing countries, for example seeking natural
resources in the Middle East and Africa, or cheap labor in Southeast Asia
and Eastern Europe.
Many countries have been recipients of
Foreign Investment under bilateral treaties commonly known as Bilateral
Investment Treaties (BITS). Hitherto Foreign Investment was regulated
domestically and rules of customary international law were applied to it.
In the past, State exercised its sovereign function of complete control of
foreign investment and the restrictions were imposed on entry of foreign
investment, acquisition of property by foreign capital and the operations
of foreign companies. In view of opening up of the economy and regulated
globalisation, there has been a radical change in foreign investment.
Foreign investors now purchase shares of a company, enterprise, commercial
establishment in the host country and equity capital is the main
ingredient of Foreign Direct Investment. Under Foreign Direct Investment
foreign investors keep control over the activities and operations of the
company. Controlling interest is one of the basic and key factor of the
Foreign Direct Investment. Franchising, licensing, goodwill, alliances and
grants which are non-equity forms of investment also come within the
definition of Foreign Direct Investment.
The rights and privileges of investors have
been extensively protected and promoted and these changes have found their
expression in numerous bilateral investment treaties. The host country
must take foreign investors no less favourably than its domestic
investors. These bilateral treaties provide minimum standards of
treatment, performance requirements, and dispute settlement mechanisms.
The body of international law on investment has developed with high speed
providing extensive rights and privileges to the foreign investors and
also increasing investment liberalization. The foreign investment reached
1.4 Trillion dollars in the year 2000 and the next 40 years would see
Brazil, Russia, India and China having a greater economy than that of G-8
Foreign Investment, as I said, has been coming for the last
50 years but not in the manner in which it is pouring in now. But what is
of importance for a developing country is what kind of FDI it wants. The
very concept of Foreign Direct investment in spite of four rounds of
international meetings starting from Angtak in 1995 which ultimately
failed, in Canacun in 1998 and then in Doha is not
clear. What constitutes Foreign Direct Investment? Foreign Direct
investment is investment in infrastructure, in production, in
distribution, in consumer goods or it is an investment in portfolio or an
investment in share market.
We in the developed country feel that foreign investment
should be for a longer period and for development of infrastructure so
that the effort of such Foreign Direct Investment can generate economic
growth. It must mean an investment for the economic development of the
host country, i.e. investment in infrastructure or investment in
production. FDI in infrastructure development in
terms of roads, flyovers, express-ways so that goods and services move at
faster rate and accelerate economic growth and FDI in these sectors is of
great relevance and importance to our country.
But that kind of investment is not yet
coming and when we talk of Foreign Direct Investment that investment
should be in our key sectors, like energy and other key sectors of
economic growth. If India becomes energy-wise self-sufficient, India can
achieve the goal of a developed nation in the world. Even today in India
we have got, a deficit in our current account of 20 Billion Dollars with
trade deficit 50 to 60 Billion Dollars, in spite of our remittances from
Indians abroad to the tune of 24 Billion Dollars. But we have a deficit
of 20 Billion Dollars and the major portion of it is on account of import
of fuel. The FDI investment is not coming into industrial development that
is of concern. In share market we got an investment of 10.1 Billion
Dollars in this year. When we want this country to become a self-reliant
and self-sustaining economy, then the Foreign Direct Investment also has
to sub-serve that purpose.
India is not a poor country, it is a country inhabited by
poor people. What is the difference between the two. If a country is poor,
the chances of its becoming rich are very remote. But if the people are
poor and you have got such vast natural resources at your end, India can
always and in the future will become a developed country. Now with our
natural resources, with our quality of education, with our sound banking
system and a competent judiciary, India is a hot destination for Foreign
Direct Investment. Therefore, what I feel is that when people come to this
country, it is because of its great institutions which we have developed
in the last 60 years, which no other developing country in the world
provide, to give confidence to the investors. But as a Judge and as a
student of contemporary development in international law, I feel that
whatever BITS are, when we in India, as lawyers or Judges, have to take
all these parameters into consideration, we have to understand that we
cannot ignore the interest of the Indian Economy, we cannot disregard the
interests of the national entrepreneurs while dealing with foreign BITs
Bilateral International Treaties in Foreign Direct
Investment. The main difference of opinion between the developing
countries and the other developed countries is in determining the
definition of FDI as the result of these considerations.
The host country is to legislate and
regulate and decide the area and to the parameters to regulate foreign
investments. Now as far as the developed countries are concerned, they
want that the host country should not lay down any law or any regulation
which is discriminatory in relation to the entrepreneurs of host country.
I personally feel when we allow FDI investment, we cannot act as
protectionist. But a sovereign nation, has to take into consideration the
interest of the people who are going to be affected by this Foreign Direct
Investment. For example, multinational companies hire people in thousands.
These people are young students and young girls from Universities. After
they come out from the schools or colleges, they are hired by Call Centres
and get about Rs.15,000 to Rs.20,000 per month. But because they always
have to remain on telephones the chances of their developing hearing
impairment will be quite high.
Some regulation in this regard is framed by the State to
compensate our citizens on account of such hiring which affects hearing
disorder then that may not amount to protectionism. These are certain
issues which we as Judges and lawyers, have to answer. These are areas
which require some regulatory work. The FDI regime wants that there should
not be any regulatory authority or regulatory mechanism over the FDI. FDI
will come if there is a complete protection to the investors and there is
a complete protection to their taking away the money. I have no quarrel on
this score and none of you will have any. So far so good. But if it
adversely affects the recipients then that area should be left for
domestic regulation. These are certain issues I thought that I will share
FDI policy in India is reckoned to be among the most
liberal in emerging economies. FDI policy permits
FDI upto 100% from foreign/NRI investor without prior approval in most of
the sectors including the services sector under automatic route.
Foreign companies after globalisation can
have majority shareholding and sometimes even more. Now the share market
you know how it works. There is nothing like a bull run, or other things.
Even the functioning of corporate world has undergone a dramatic change.
These are changes which may not be discernible on the face of it, but has
wider repercussions and have to be understood in the larger context of the
development of our national economy. These are very interesting issues
which you will be confronted in future.