New Delhi: In the past two decades, the geopolitical growth and the economic might of India has grown. But has it made India the hottest market in the world?
The current surge of investor interest and capital inflows, as well as the western media focus into India echoes the allure of a modern-day gold rush. Investors, driven by the pursuit of financial gain, gravitate towards emerging opportunities with the potential for substantial returns. However, it is essential to recognise that this interest is primarily motivated by economic factors rather than a genuine love for the country.
As economies like India grow richer, there would be much more fees generating businesses across wealth business, UHNI family offices, M&A activities, amongst others. These are the pot of gold that global banks like Goldman Sachs & Morgan Stanley would want. For example, Goldman Sachs is planning to ramp up its credit business in India and sees an increasing opportunity to target the nation’s wealthy diaspora. Incidentally it is because their margins from China business and the effort it takes to juice-the-products would have dried up after two decades of benefiting from Chinese economic upward trajectory.
After all, they have not been part of Indian rags-to-middle-class to upper-middle class story. For making money in those space is difficult, as it needs long term stable and focused efforts. But then, the big banks from advanced economies have the advantage of the “old boys network”. Be it across sovereign ratings influence or debt market pricing.
Suddenly India is the new-China.
We will hear more about Indian market’s strategic appeal, due to its largely domestically-driven growth, and that it would offer investors a wide array of alpha/beta generating themes. We will also be shown various charts, and presentations that Indian economy is driven by domestic consumption by demographic dividends and hence the market will offer stability for growth for next two decades.
In line with our geo-economic strategy, India stands to leverage the influence of global financial institutions advocating for the Indian market. These entities possess the capability to facilitate capital inflows into India, albeit driven by their own profitability imperatives. Notably, similar to the emphasis placed on China strategies by US multinational corporations a decade ago, a comparable focus on India strategies is anticipated to become important for maintaining confidence from global boards in the coming years. A decade ago, any US MNC CEO who did not have a China strategy, chances were that her / his Board lost their confidence in the CEO. Same will happen around India-strategy in the next few years.
However, the contribution of large foreign banks to job creation in India is limited. Their recruitment practices typically prioritise top-tier talent at premium global salary levels, primarily based in select Grade A office spaces across a few cities. Furthermore, the intellectual property generated by these institutions’ Global Capability Centers (GCCs) in India predominantly accrues to their parent companies, thereby depriving India of the benefits of its talent pool serving foreign brands. Addressing this issue underscores the urgency for the Indian Patent Office to enhance its proactive approach.
One should reiterate that India is not a replacement for China.
India is not China 1.
The Indian narrative is distinct and still growing stronger, offering a trajectory for consistent profit generation over the next two decades. While it won’t be easy though.
While India boasts a sizeable domestic consumption market, predominantly comprising a youthful demographic, challenges persist, including a significant proportion of the population in lower income brackets and elevated stock market valuations. To serve these consumers, entities need resilient strategies, and to have long term patience in profit booking. This has been the harsh India lesson where entities or private investors wanted to quickly churn their capital.
To bolster investor confidence, emphasis must be placed on enforcing contractual obligations through regulatory reforms, a facet that has historically been slow and underdeveloped. Confidence in India’s economic prospects is underpinned by a myriad of stable long-term factors, warranting a strategic approach to harness its full potential.
But the advantage that looks as a larger possibility is that the same government is expected to come back to power, probably with larger mandate. That could give it time and energies to the focus on geo-economics. Of bringing upgrades to regulations and reforms to laws that could see structural catalysis in the way we deal with land, agriculture, labour and contracts. If not anything, it is a wish list for many investors, domestic and global.
However, it’s important not to misconstrue the intentions of global players seeking entry into the Indian market as acts of benevolence towards India. For example, when Google Pay extols the virtues of Indian digital payment infrastructure (DPIs), it’s primarily motivated by a desire to establish a foothold in the market and capitalise on the anticipated exponential growth of digital transactions in India. Nonetheless, credit must be given to Indian financial regulators for maintaining stringent regulatory standards, which serve to safeguard the interests of all stakeholders. Over time, there’s hope that these regulations should evolve to ensure bilateral rights are upheld as minimum standards. This principle dictates that if US regulations surpass those in India, American entities operating in India must adhere to the higher regulatory requirements, mirroring the reciprocal arrangements often negotiated between countries for aviation landing rights.
The narrative surrounding the promotion of India’s technology ecosystem is akin to a double-edged sword. On one hand, India boasts an extensive array of digital public infrastructure, a testament to its progress in the technological sphere. However, the other edge of this metaphorical blade pertains to the more structural aspects, particularly in emerging technologies like Web3, AI, and the broader landscape of the Fourth Industrial Revolution (4IR).
India missed the boat during the eras of Web 1 and Web 2 due to a lack of political influence, deep-tech engineering prowess, and significant capital investment during the 1990s and early 2000s. While Western nations, notably the US, had the financial means to attract talent from across the globe, India lagged behind. However, given the geopolitical ramifications of these technologies, for example even their influence on domestic elections of a nation, India must now aspire to not just achieve excellence or mere presence but to establish supremacy in the deep-tech focus of Web3 and AI.
Yet, significant concerns persist. Our STEM education, barring a few outliers, remains mediocre and outdated. It’s essential to discard any notions of shyness or political correctness in addressing this issue. The National Education Policy (NEP) may offer a pathway to rectify this inadequacy, but its effective implementation across various states will likely require several more years. In contrast, countries like the US and China have invested substantial time, financial resources, and established centers of excellence in areas such as AI and quantum computing. India must now adopt a competitive mindset, despite entering the game later than its counterparts. It cannot merely embrace the spirit of participation, akin to the Olympic motto, but must strive to emerge victorious in this technological race.
Back to the gold rush of foreign banks and big bulge bankers and private investors singing the India-song. Two decades ago, they learnt about chopsticks, not for love of the culture, but for their own wealth creation by serving an opportunistic market play.
This time, it is the Indian wealth generation, which will make them move from Chopsticks to Chai and Chapati, from noodles to naan, and from having a diversity brown-desi presence in their Sitcoms and Hollywood to mainstream desi characters as folklore American culture.
( The author is a Policy Researcher and Corporate advisor. Srinath tweets at @ssmumbai )
(Disclaimer: The views expressed in this article are those of the author alone. The opinions and facts in this article do not represent the stand of News9.)
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