Not foreign vs Indian issue, say experts
But although this sort of business risk always exists, the final outcome would decide if investor confidence gets hurt, they say
India’s food regulator’s order, recalling Nestlé India’s Maggi noodles from stores and stopping its production, has triggered a debate on foreign versus Indian, in the backdrop of a growing buzz that the clamp on multinationals is faster than on domestic companies.
Sector experts, however, say regulators across countries are getting active and recall is part of any business. If the issue is resolved in time and effectively, foreign investor confidence will not be shaken.
However, several business people and company representatives (especially from multinational companies), as well as business chambers, also did not want to comment on the matter. Even though major foreign retail chains such as Walmart and Metro decided to remove Maggi packs from their wholesale store shelves even before any action was taken by the regulator or the government. Also, other countries’ regulatory bodies, including in Britain and Singapore, have begun investigation into Maggi made in India.
On whether the recall order, first of this kind, would send a negative signal to foreign investors, Sidharth Birla, former president of the Federation of Indian Chambers of Commerce and Industry, said it was in the nature of a business risk for this kind of a company. “It’s not about foreign versus Indian companies.”
The speed with which this matter is resolved will determine if the latest development would have an adverse impact on investor confidence, said Birla and a quick resolution would add to the credibility of the country.
It’s early to say if investor sentiment or even the government’s Make-in-India campaign would be hit because of the action against Nestlé, said Gurcharan Das, a former chief executive at Procter & Gamble India. “We have to get down to the bottom of it to assess the impact. Everything will depend on the final outcome.”
If the product (Maggi noodles) is found safe and government action wrong, there could be reason for distrust, says Das.
Another view is that even Indian companies, primarily pharmaceutical ones, have faced action from international regulators. So, the Maggi recall should not be interpreted as an anomaly. Piruz Khambatta, chairman of the national food processing committee at Confederation of Indian Industry, said: “It’s part of reality for international business.” Regulators over the world, he said, were getting active, and the recall order of the Food Safety & Standards Authority of India (FSSAI) should not influence investor sentiment.
Agrees Arvind Singhal, founder of Technopak Advisors, a leading retail consultancy: “I don’t think this will have any implication on investor sentiment. Any number of MNCs have been in India for decades.” Recall is part of an operating process, said Singhal, adding that food contamination is about human life and the government cannot take a chance on the matter, when asked if Indian authorities acted in haste.
“I look at all international investors with respect but they should follow standards,’’ Yudhvir Singh Malik, chief executive at FSSAI, had told Business Standard after the recall order. If there are instances of violation, action must be taken, he said. While they (MNCs) are more than welcome in India, they must give the same quality in India as they do abroad, he’d added.
Gurcharan Das said the two sides should come together, as only a collaborative approach rather than a confrontation would help resolve the matter. “Many other issues like Minimum Alternate Tax have hurt investors. Hope this won’t be like that.”
Last Friday, FSSAI ordered a countrywide recall of Maggi noodles after many state governments reported the presence of monosodium glutamate (MSG) and excessive lead in samples. A few hours before that, Nestlé India had announced recall of the product, while also claiming the product was safe for consumption. Paul Bulcke, global chief executive of Switzerlandbased Nestlé, had flown here to talk to Indian authorities and then announced recall of the popular two-minute noodles as “trust”’ of the Indian consumer was “shaken”.