The MEA’s new responsibility: Overseeing Foreign Investment in States

The Ministry of External Affairs has decided to take up a new responsibility, namely to oversee Foreign Direct Investments to states. At the face of it, such a decision sounds efficient. The MEA being a body that handles foreign policy and as a result, foreign trade and investments. Therefore, it is only fair that the MEA coordinates the investments to states as well. The new move seeks to streamline procedures for state officials visiting abroad to secure investments and also to solve a problem regarding centre-state coordination when it comes to the investments.So a new joint-secretary for ‘centre-state’ relations has been appointed and they will work on the coordination. This department however, will not be in trying to solve differences between the centre and the state as we have seen in terms of Tamil Nadu and Sri Lanka or West Bengal and Bangladesh. That is still upto the political leadership to solve.

This has come in the face of calls, especially from foreign businessmen, for the centre to solve their coordination problems in terms of state investments. The Japanese brought this up given their investments in the Delhi-Mumbai Industrial Corridor and other projects, because the states apparently are not adhering to commitments and delaying the full economic benefit of these investments.

There are two major concerns that this author would like to share in the face of such a policy move.

1) Staffing

The Ministry of External Affairs is a woefully understaffed department. The Indian Foreign Service has a total of a little over 800 diplomats, a diplomatic corps whose strength is the same as Singapore. But let us understand that Singapore is nearly a city-state, while India is the second-most populous nation on the planet. They are already overworked and are stretched thin over their representations all over the world and on various issues.

Adding more responsibilities for supposed increased coordination is a very noble idea, yet, without increasing the staff levels in the MEA, it is a futile exercise.

Combined with the lack of personnel is the policy of not inducting people from outside government into the MEA. So MEA rarely has expertise on issues. It has always been a very generalized service which does not have a lot of specialists from outside, a rather normal feature in many other Ministries of Foreign Affairs (‘External Affairs’ remains a very colonial term, which has still not been changed after over 65 years of independence).

Handling investments and more importantly, coordinating with states requires certain expertise and skills. A Joint-Secretary and the staff assigned to him/her requires some extensive training on the subject. Staffing levels simply need to be increased in order to conduct this responsibility well and not create further problems.

2) The State representation dilemma

People have welcomed such a proposal with the idea that states shouldn’t have separate representatives going abroad to get investment for their states. This would more or less comply with our idea that there should ideally be a unitary bias. On one hand, the logic is irrefutable. After all, even foreign business executives don’t see Karnataka or Rajasthan or Meghalaya, they see India. They believe in the Indian growth story, and they shouldn’t be hassled over this whole business of 29 different states coming separately to vie for investments. This makes perfect business sense.

However, the other side of the coin also has some valid concerns. To begin with, states must be able to compete for investments. This was a view echoed by none other than PM Modi himself in the Global Investors Summit in Madhya Pradesh this year. He used the apparent successes of Gujarat in being able to muster Foreign Investment as a model (the Gujarat economic model is disputed in terms of its successes).

First of all, States being able to compete is a good barometer of performance in office. After all, foreign investment does rely on good governance and support from the government. This is an incentive for state leaders to improve their governance and business climate of their state. Secondly, states are the best judges of the kind of investments they need and how they can be optimized.

In this light, having the MEA to coordinate state foreign investments in a way in undermining their authority. Though so far, the idea is not to stop them from trying to pursue investments, but to coordinate state delegations visits, passport issues and projects follow-up and policy reviews, this may still seem like intervention from the centre in State finances.

Right now, if the MEA wants to salvage the situation, it has to do two things. Firstly, drastically increase staff numbers and start recruiting talent from outside the traditional modes of recruitment and secondly, come out with a clear cut description of the role of this new policy and what are the duties of the new Joint-secretary for Centre-State relations. This clarity needs to be there in order to prevent any sort of confusion and misunderstanding from states.


Ashwath Komath
An article by:
Ashwath Komath

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