2023-09-17 19:13:40
Fund flows seem to be favouring India, valuations notwithstanding. What is happening in the economy or the financial markets to have drawn so much attention?
I am of the view that India should not rest on its laurels. Our aspirations need to be higher vis-a-vis what fundamentals are. I am more bullish than most people but what I am not happy about is our progress in comparison to our growth and progress. In terms of hard facts, we are not getting the FDI that we should. We have earned our stripes. The narrative is no longer about why India is interesting. The moot point is how to monetise this interest. We need to convert it. The cycle needs to be shortened between interest and actual investment. Our rating is only at the cusp of investing rate and that does build a little bit of conservatism among investors. I think India’s rating should be at least two notches higher, if not more. It is just a question of when we will get there, not whether we’ll get there.So, what do you think could really make India monetise the opportunity?
We need to convince the world that we will be the fastest to get things off the ground. The world does trust us. But there is a price of democracy which investors have to pay, and we need to convince them to do that. When we talk of government, we should break this down into central, state level and local. I think on the central level we score well. On the state level, we can give good marks to some states, but at the local level, we will probably get the lowest marks. We talk about ease of doing business, but ease of operating business is what is more important.
What are your global clients saying?
When we talk to global CEOs, I always advise them that India is not the place to be in if you are working for the next few quarters, but if you want to leave a legacy, you cannot miss India. India will take time for fruition, but we will deliver. Hardly anyone who has invested in India has regretted it. You can get in and get out and make your returns. It’s not like Hotel California where you can come in but can’t get out. That may be a worry for investors in some neighbouring countries, but not in India. The Make in India narrative must really become a force of attraction. And we must address operational elements where companies get stuck. The three L’s – land, labour and legal – are important for anyone who has a longer-term perspective.
Some of the large European companies such as Volkswagen have been here for a long time. What are the smaller firms saying, especially given the China+1 narrative?
In the middle of this year, I visited 13 cities in Germany over four days and saw a lot of interest in India not just among the big companies but also from the mid-sized companies – the Mittelstand (turnover of ₹1-5 billion). I think we need to attract these millions worth of investments and it will all add up. India is a tough sell among them currently as being able to quickly set up operations is important for them. Often, we lose out to smaller countries in Southeast Asia -Vietnam etc. An important factor here is that the German government is encouraging its companies, and industry to look at India. We are also part of the initiatives where the German and the Indian governments are working together to push the Make in India Mittelstand programme.Many investment conventions keep happening. What is the direction we need to take?
I see a lot of MOUs being signed, but I want to see the conversion ratio. That’s my whole point, the conversion ratio is the one which we need to work on. So, if an MOU is done, we need to have a crack team to follow up and convert. Rather than improve our strike rate, let us improve our conversion rate. I always believe whatever gets measured gets done.
How much of a deterrent have higher interest rates globally been for investment?
If you look at business and services investors, short-term interest rates are not an issue. However, from a financial investor’s perspective, it matters. From their perspective, I think they would love to see India’s inclusion in global bond indices. It will be good for India to get this. One of the things that is very clear is that while our savings ratio is going up, it is inadequate to fund our growth. So, we do need FDI, and we do need FIIs. The other thing we fear is the issue of the government crowding out the domestic savings. Once we are part of the index, there is a particular weightage, which somebody chasing that index must keep.
You are one of the largest global custodians. Are you optimistic about the standoff between the RBI and European authorities being resolved before the October 2024 deadline? If not, do you have a Plan B?
It’s an issue between the regulators and we are expecting them to arrive at a resolution which is good for the market overall. I’m hopeful of that. Yes, we do have a Plan B in place. As far as Plan B is concerned, we will still be offering all our services to our clients. But in a way, which may be partly direct, partly indirect.
Even as stock markets ascend to new highs, the rupee is hovering near new lows and crude oil prices are hardening. What is the outlook on the external front?
The question is, how should we look at India – as a trader, or as an investor? If you look at our fundamentals, with our better control over inflation and higher growth, we are going to be better than the rest of the world for the next few years. In that scenario, from a purely economic perspective, the rupee should not depreciate that fast over a period of time, as it has in the past.
What is your reading on the fiscal front? Tax revenue trends are weak, and this is a pre-election year.
I’m not highly concerned with the fiscal deficit management of our country. I think we have shown a fair amount of fiscal prudence, and the good thing is that we have a government that declares its objectives. I think they have done what they broadly said. We should give high marks to our government and the regulator for managing well. No wonder our system is well recognised.
Among global banks in India, the choice is clear on being wholesale. What is the new initiative that you see helping Deutsche grow?
Our entry into GIFT City is well thought out and long-term. We commenced business in GIFT City last July, with credit facilities for corporate clients. Within the framework of extant guidelines, it will facilitate cash pooling and other deposit propositions for Indian and international clients. We see an increase in the demand for cross-border banking services from hedging to financing. Our IBU will help us bridge this gap for our clients, opening new avenues of growth for them. We think the GIFT City policy is a calibrated approach towards the internationalisation of the rupee. The next steps could be to grow the rupee liability and allow exporters to retain rupee proceeds. It would be useful to allow foreign companies to issue rupee debt in GIFT City and swap it back to their functional currencies to nurture the ecosystem that could help towards the calibrated internationalisation objective.
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