It looks like foreign investors are running out of patience with India.
Discontent is swelling from all sides, and at least some companies are actively seeking alternate options to investing in India.
Telenor is one of them. The Norwegian company was among the worst affected by the Supreme Court’s decision earlier this year to cancel 122 telecom licenses issued in 2008.
According to a report in The Economic Times, Sigve Brekke, executive vice president and Asia head of Telenor, warned that if the Telecom Regulatory Authority of India’s proposals to auction airwaves at 13 times the price paid in 2008 are accepted, the company would have no option but to quit India. “If these recommendations become policy, we will be forced to exit India,” he told the newspaper. “It will be impossible for us to continue operations here.”
While some experts might dismiss that as plain bluster, the fact is Telenor is not the only one rethinking its India strategy.
In widely reported comments, L N Mittal, the UK’s richest man and global steel magnate, admitted that India is no longer an investment priority for his business group, even though the country still boasts “growth opportunities.” While he does offer some soothing statements like “India’s growth story is definitely not over,” and “Whatever may happen in terms of politics, I think the country will continue to grow,” he’s clearly not inclined to put his money where his mouth is.
The slow pace of project approvals and mind-boggling bureaucracy in India have hampered progress on three high-profile steel projects of ArcelorMittal, the world’s largest steel producer.
Again, it’s not the only one facing that problem. Foreign – and local – investment has slowed across industries because of a lack of regulatory and environmental clearances. Policy flip-flops and recent proposals to increase the tax burden on investors, mainly foreign, are further hurting investor sentiment deeply.
Cementing that mood was ratings agency Standard and Poor’s, which lowered the outlook on India’s sovereign rating to negative from stable last week, citing a lack of progress on fiscal consolidation as well as economic reforms, and a worsening external situation.
FIIS already quitting?
To be sure, in the financial markets, investors are voting with their feet.
As a PTI report notes , foreign institutional sold a net Rs 777 crore from equity markets in April (until 27 April). They also sold Rs 2,111 crore in debt markets, taking collective sales in Indian financial markets to about Rs 2,888 crore.
That’s in sharp contrast to January and February, when foreign investors poured in nearly Rs 36,000 crore in equities. Underlining the glum mood is Och-Ziff, a $30-billion New York-based hedge fund, which has frozen secondary market stock investments in India due to soaring compliance costs and muddled tax policies, according to this report in The Economic Times.
Yet, the government seems oblivious to these developments. As Ruchir Sharma, head of the global emerging markets equity team at Morgan Stanley Investment Management and author of Breakout Nations notes, in an interview to DNA, “In India’s case, what concerns me is the attitude. ‘Listen, we will grow by 7 percent, no matter what happens. That is a given.’ Now why it is a given, I don’t know. Earlier, it was 8-9 percent. Many businessmen also like to parrot the line that 7 percent growth will happen, no matter what happens. To me, I find that very disturbing. Maybe, it is changing now, but till at least a year ago, the attitude was very clear.”
Worse, no one is nursing hopes that things will change soon. Nobody should “hold their breath for a born-again government,” Rajeev Malik, economist at CLSA Asia-Pacific Markets told Herald Sun, an Australian newspaper.
That view was echoed by Moody’s Analytics economist Glenn Levine, who also said the Indian government did not have the “leaders to push through tough-minded reforms needed to drive the next wave of growth”, according to the Herald Sun report.