Economic reforms to help India draw global investors: K Balasubramanian, Citibank

We have two of the biggest events– budget and monetary policy – behind us. What do these two events mean for investments and consumption?
Considering the fiscal constraints, the government did deliver. India realises a build-up of capital is needed in the next decade to meet our infrastructure spends and our growing consumption. So foreign capital is necessary. A majority of the announcements in the budget focused on increasing avenues for foreign capital flows which is the right thing to do. For example, some of the incentives given to sovereign wealth funds are in the right direction to support the planned investments in infrastructure and consumption.

What are global investors saying on some of these proposals?
Most of these international sovereign wealth funds and pension funds wants to come into the country. Canada already has significant investments. Middle Eastern funds are interested in increasing allocations. Singapore and Japan have historically been big supporters of India. With the likely trade deal under works with the US, there could be a further acceleration of relationship and trade with the US.

Then what’s the worry for markets?
The one factor influencing markets now is COVID-19 (Coronavirus). This may put the markets back by four to six weeks. There have been some initial ripples across Indian and a few Asian markets as this hasn’t been factored in. But it is early days. One has to wait and watch.


How does that impact India?
There have been advantages — oil prices are coming down and we may see an acceleration of companies’ plans for India as a manufacturing base. Citi has close to 30% market share of the multinational business and we have a large exposure to manufacturing. Global manufacturing companies have been thinking about a dual — Asia strategy, or China + one, to balance out production. India can clearly become a beneficiary, particularly given the policy and tax measures the government has taken since last July.

What does India need to do to be that ‘China +1’? So far, we have seen a shift to ASEAN nations and not seen much to India.
The immediate benefit we are going to see is in the telecom industry. Already a couple of big majors, including the Chinese manufacturers, are setting up plants in India. The second, which is going to be a game changer, are electrical and electronics. If a combination of telecom, electrical, and electronics come in over the next 18-24 months, it is only a matter of time before semiconductor manufacturing follows. You would have some big companies working with the government to set up manufacturing bases in India and make the country a global supplier base. Electrical vehicles is another big opportunity, given we have the entire automobile ecosystem in India.


India has moved up in the Ease of Doing Business index. Have things really improved on the ground?
Most global clients say a 5% or 6% growth on a base of $3 trillion is a reasonable growth. Even if there are teething problems, they are interested in investing in India, given the potential. We have some big advantages, but sitting here we discount many of these factors.

What are those advantages?
Besides our inherent growth, India’s English-speaking work force is a huge advantage compared with most of Asia. The second is our legal system and the recent positive momentum from the Indian Bankruptcy Code.

Consistency in policy is an area that has seen improvement too. For instance, the Budget provided a parallel track of five years so that a corporate can choose the tax regime that suits their requirement. The government is getting things right and the policy pieces are coming together.

Chemicals is another area that’s being talked about being the beneficiary of China. Is it so?
It is primarily a short-term opportunity. Globally, every fund is focused on Environmental and Social Governance (ESG). It is only a question of time before every country adapts to these standards. We believe ESG will play out as a big theme in the 20s decade. Both Western Europe and North America have adopted these standards. China has already taken steps. It is a question of time before India adapts. Already, we are seeing Indian companies tapping international markets with the ESG theme.

Indian corporates appear to be favouring global borrowing rather than in India. Why?
Indian companies, in terms of core fundamentals, are better than other emerging markets. This translates to the demand for Indian paper when it hits the market. There is also this scarcity value of Indian paper. So, a combination of these two factors has enabled a lot of Indian companies from the first week of January to go out to market.

Domestic liquidity has improved and rates are falling in domestic market as well… The RBI has shown nimbleness in solving the supply side constraints. I believe, on the demand side, rural income will start to flow from March onwards as the bumper rabi crop comes in. Realistically, post-September quarter is when I would expect things to start really coming back to normalcy with rural consumption returning.