The cream of India Inc is making big ticket investments overseas rather than in India. Over the last 12 months, Mukesh Ambani's Reliance Industries has already invested $5 billion in Africa and the US. Reliance Industries expects to double its investment abroad in four years. Anil Ambani's Reliance-ADAG has invested $3 billion globally in 2011, including in mining projects in Indonesia in 2011. He expects to more than double that to $7 billion in 2015. Ratan Tata, whose group already draws 65 per cent of its revenues overseas, has invested more than $1 billion internationally this year. The Ruia-promoted Essar Group expects to invest $6 billion overseas by 2015. Sunil Mittal's Bharti Airtel spent $8.2 billion acquiring Middle East-based telecom firm Zain's Africa operations last year even as his competitors in India battled the fallout of the 2G scam.

In the 12 months between April 2010 and March 2011, overseas investment by Indian firms was a massive $44 billion, an unprecedented 150 per cent rise from $18 billion in the previous 12 months. Inward direct investment from foreign firms between April 2010 and March 2011 was $27 billion, 25 per cent lower than in the previous year. For a fast-growing emerging economy-India is still the second-fastest growing major economy in the world after China-it is most unusual to have significantly higher capital outflows than inflows. Is this what Ratan Tata meant when he said India had become a banana republic? Certainly, Tata is not investing in bananas. Rajiv Kumar, economist and secretary-general of apex industry body FICCI believes the global expansion is more than just a routine expansion of business. "I would say that the rate of return on investment in India is higher than abroad. So if investment is going abroad, then it must be for reasons other than that," he says. Deepak Parekh, Chairman HDFC, is more pointed in identifying the reason behind this sudden rise in overseas investments by Indian firms. "Earlier, investing abroad seemed to be a risk diversification but the current impasse (in governance) makes it a necessity for companies to look elsewhere," Parekh says.

The diffidence of investors in the Indian story is corroborated by a cursory look at the numbers for fresh investment in the last 12 months. According to data compiled by Projects Today, a sum of Rs 1,97,000 crore of fresh investments was committed to the Indian economy in the period between April and June 2010. A year later, between April and June 2011, that number had fallen by 70 per cent to just Rs 57,000 crore. Says Saugata Bhattacharya, chief economist and senior vice-president, Axis Bank, "There is no doubt that a slowdown in investment has taken place."

Pranab Mukherjee and Manmohan Singh at a meeting in Delhi Pranab Mukherjee and Manmohan Singh at a meeting in Delhi

The UPA Government must bear the blame for failing to create an investorfriendly environment. Industry had high expectations from the Government after it was a re-elected with an enhanced majority in the General Elections of 2009. The people of India had even unshackled the UPA from the clutches of the Left parties. Two years have passed since the elections and the UPA, much to the shock of its friends and surprise of its enemies, has failed to pass a single reformist, industryfriendly legislation. At least eight important economic legislations are drafted and ready to be brought to Parliament. The opposition to most of these legislations is from within the UPA, not from opposition parties like the BJP. The UPA's managers have not reached out to the opposition. The Congress party, its heart still in old-fashioned socialism, has probably not wanted them to do so. Instead, the Government is in a state of paralysis. It has been robbed of credibility by the revelations of successive scams. Its ham-handed attempts to nail the alleged perpetrators of the scams have led to perceptions of a witch-hunt. It has deterred ordinary bureaucrats and businessmen from making even routine decisions, all of which can be questioned by multiple Government agencies-CBI, CVC, CAG, ED. The prospect of jail without bail is making corporates nervous. It isn't just scams. Crucial policy decisions are held to ransom by warring ministers unwilling to defer to prime ministerial authority. The prime minister seems unwilling to change this.

If a besieged Manmohan Singh is searching for inspiration, he need only rewind the clock to 20 years ago. At 5 p.m. on the evening of July 24, 1991, Finance Minister Manmohan Singh, just one month old in politics, stood in Parliament to deliver his maiden Budget speech. An hour later, he had laid out a radical new roadmap for reviving a crisis-ridden economy. At the end of his speech, alluding to India's inevitable rise as an economic powerhouse after liberalisation, he said, quoting Victor Hugo, "No one can stop an idea whose time has come." The self-effacing Singh had delivered a firm warning to the opponents of his reform programme. Most of them were in the Congress. He stuck to his course for the next five years. In 2011, Prime Minister Manmohan Singh, seven years in office, seems to have none of the passion from 1991. If ever there was a need for Manmohan to revisit those famous words of Victor Hugo and say them out loud, it is now. The promise of 1991 is threatening to implode in 2011.

A year ago, there was optimism of catching up with China's double-digit growth rate. Now, there is despondency. The most visible symbol of a halt in the India story is the embattled telecom sector, which powered India's growth in the 2000s, much like IT and pharmaceuticals had done a decade earlier. The telecom sector was also the most powerful symbol of the UPA's favourite "inclusive growth" slogans. There are more than 700 million mobile phone subscribers today from just two million in 2000. More Indians have a mobile phone than a bank account. That story is turning sour. Three of India's biggest business groups, the Tatas, Reliance-ADAG and Essar have been directly hit by the mess created by the Government in telecom. Instead of expanding their business in India-already under pressure from brutal local competition-they spend their time and resources dealing with investigations. The remaining players in a oncebooming sector are lying low or, like Bharti-Airtel, focusing their energies overseas. When Bharti-Airtel bought Zain's Africa operations, Mittal appointed his right-hand man in India Manoj Kohli as head of Africa operations in a clear signal of where his priorities lie. This is a remarkable turnaround and is symptomatic of the spluttering of India's growth story.

Sunil Mittal isn't the only top businessman thinking about his overseas investments. In a week, the Essar Group's Essar Energy Plc will complete its $350 million acquisition of the UKlisted Stanlow oil refinery. The refinery's acquisition from Royal Dutch Shell PLC was initially announced in March. During an interaction with officials of JP Morgan Stanley and Deustche Bank a fortnight ago, Essar's Ruia brothers compared the speedy processing of the deal by the UK government with the fate of their power plant that lies close to the Mahan coal block in Singrauli, Madhya Pradesh. Clearance has not come for the coal block that has an estimated 150 million tonnes of thermal coal reserves to feed two power plants of Essar and Hindalco, the flagship subsidiary of the Aditya Birla group. "So what do we do?" asked brothers Shashi and Ravi Ruia. The bankers instantly showed them a report which said price per unit of power would skyrocket to Rs 150 from Rs 15 per unit if coal were to be imported from Australia. "We look abroad," said Shashi, reiterating the group's plans to diversify its asset base beyond the Indian market. Besides the Shell refinery, the group had acquired an iron ore mine in Minnesota, US, a coal mine in West Virginia, US and a steel plant in Zimbabwe last year.

Ratan Tata's Tata Steel has already invested around $ 1 billion in its wholly owned subsidiary in Singapore in 2011. Deepak Parekh can see why. "Groups like Tata have always evinced interest in setting up a new steel plant in India but that has not materialised for one reason or another. They are making their investments abroad," he says. Ratan Tata is still angry about the way things are playing out in India. In a recent meeting with a friend, Tata was reminded about the CBI's continued probe into the 2G scam, and how at least some of the group's complaints about the improper functioning of the Department of Telecom were being corroborated by the premier investigating agencies. Tata was silent for 10 seconds and then reportedly said, "Why is it that whatever good we do is always turned into evil by someone? Will this be the fate of all honourable businesses in this country?" The conversation ended abruptly thereafter. Sitting at a close distance, a director on the board of Tata Sons reiterated what he had told a brand consultant a few months ago:"I am always happy to be engaged with the idea of India but, of late, I am getting anxious."

Engaging with India is not impossible. If the prime minister wants to focus on a single sector, it should be infrastructure. It is the one sector most likely to replace telecom as the leader of India's growth story in the 2010s. The Government is committed to spending $1 trillion on infrastructure between 2012 and 2017. That should normally be enough to attract investors. But a combination of inefficient ministers presiding over key ministries, uncertainty about land acquisition and environment clearances and elaborate red tape are deterring potential investors.

Says Prashant Ruia, CEO Essar Group, "Clearances come much faster abroad." Mukesh Ambani, chairman of Reliance Industries, would no doubt agree. He recently called a friend in Delhi to inquire about the fate of his $7 billion deal with British Petroleum announced in February. India's richest man was told that despite a deemed approval, the deal had been referred to the Cabinet Committee on Economic Affairs. The deal will go through. The question is when.

Moving the obstructionist Jairam Ramesh out of the environment ministry is a start to eliminating unnecessary red tape. However, other under-performing ministers in crucial infrastructure ministries like C.P. Joshi in roads and highways, G.K. Vasan in shipping and Sushil Shinde in power stay where they are. The prime minister says they will stay there until 2014. That cannot be good news. In environment, new minister Jayanthi Natarajan has her task cut out. The thermal power sector, pivotal to India's growth story, is facing a shortage of 100 million tonnes of coal, expected to double in the next five years. Ramesh's no-go policy for mining had ruled out the extraction of more than 600 million tonnes of coal reserves. Allowing new mining is crucial if investments are to be attracted and capacity targets met.

Says economist Bibek Debroy, summing up the dismal business environment, "India is entering a phase of decline. We are going back to a regime of controls. There is no sanctity of contracts; permissions granted can be overturned later. There is a climate of excessive government control."

Industry is also suffering from the regime of high interest rates. The RBI has hiked interest rates 10 times in the past year, raising the cost of loans by at least 3 percentage points to double digits. In contrast, capital overseas remains very cheap. It is the Government's mismanagement of the agricultural economy that originally created the problem of food inflation which later spilled over to the economy. There is now every chance that GDP growth in 2011-12 will be below 8 per cent. "Whether a growth rate of 7.5 per cent is disappointing or not depends on what your benchmark is. This government seems to have settled on 7.5-8 per cent rather than 9.5-10 per cent," says Debroy. If he's right, it would be a betrayal of the promise Manmohan made in 1991. Investors will always find other markets that bring them handsome returns but hundreds of millions of ordinary Indians who depend on a high growth rate and fresh investments for new jobs will be left behind.

- Inputs from T. Surendar and Rajesh Sharma