1. 32 TFR APRIL 2015
REGIONS: INDIA
“We are clearly looking at the Middle
East, US and China as the biggest trading
corridors in the next five years,” he said
about shifting trade sentiments. “There
might be a slight change in composition
of trade. India, after developing its
manufacturing capabilities, will look at
scaling back trading in commodities and
shift towards value added services.”7
Sengupta also views India’s growing
infrastructure requirements (accelerated by
the recent budget strategy of less austerity
and more infrastructure investment) will
attract more ‘sophisticated investments’
from the Chinese corridor. HSBC is
currently looking at the pharmaceutical and
IT sectors as “they tend to perform well
even in leaner times.”
Pharmaceuticals
According to Dr P V Appaji, director general
of Pharmexcil, India’s pharmaceutical
exports will cross US$16.5bn by the end of
the financial year 2014-15. Of the current
exports to the US, pharma represents around
30% and is expected to grow to 35% in the
next 12 months. Quoted in various Indian
newswires, Appaji also commented on how
partnerships with neighbouring exporters
such as Vietnam and Myanmar were helping
things along: “Our pharma exporters and
entrepreneurs with a strong support back
in India can even access markets of Laos,
Cambodia and Myanmar etc and can spread
their network in the entire South-East Asian
region and build strong business ties. ”8
Sengupta feels that networking within
HSBC’s ranks in countries such as US,
China and Russia will complement the top-
level policy advances. Keeping the budget
in mind, he said: “I understand that the
industry has received the budget well.”
Investor perspective
Shridhar N, managing director of Pegasus
FinInvest Advisory spoke to TFR about the
changing dynamics of angel investing in the
pro-business Modi era. “It is the first time
that we have government that won with a
clear majority. More importantly, whether
it is a tax regulation or any bill, it can go
through without any hassle.”
He said that people wer confident that
the government would make doing business
in India much more easier and simpler.
“From the investment point of view, all
bottlenecks such as retrospective [tax]
amendments will be ironed out and things
will become much better.”
Corporate investors have generally
been wary of Indian stance on taxation
and regulation. An especially high-profile
case was embroiled around Vodafone and
its operating subsidiaries in India. The
government eventually passed a retrospective
amendment to bring Vodafone under its
jurisdiction and slapped on a hefty INR
11,000cr (US$2bn) tax bill on the company.
Modi has also tried to distance itself
from the world-wide “tax-terror” image that
India presented under the Congress led UPA
government, who were soundly thrashed
for alienating investors. He plans to entice
corporate capital inflows by proposing to
reduce the rate of taxation to 25% from its
previous 30% levels.
In the current budget, Jaitley has
signaled a willingness to end the ambiguities
in the tax rules, “This provision is being
suitably cleaned up. Retrospective tax
provisions adversely impact the stability
and predictability of the taxation regime
and resorting to such provisions shall be
avoided,” he told journalists before the
budget was placed before the public.
As an investor, Shridhar is particularly
keen about capital inflows into real-estate
and infrastructure segments. “I can see the
trickle coming in,” he adds. “Affordable
housing is another sector which is
particularly interesting.”
Commenting on the ‘Make in India’
ideology, he expects that export-oriented
industries would be given special focus by
incentivising them until the investment
outflow went up. But the results will not
be immediate. “You won’t see corporate
investments going up in the next six months.
But after a one year time frame, the benefits
of all of [Modi’s] investments will kick in.”
Shridhar predicts. “The financial year of
2015/16 will be the year to watch out for.”
The man and not the country?
The corporate perspective on Modi’s
performance was shared with TFR by
a senior Reliance Industries Limited
[RIL] official who backs Modi’s stance in
governance. “Modi has a charisma which
no one in the current crop [of politicians]
can really match,” he declares. At US$67bn
at its March 2014 financial year-end, India’s
largest private company (in the Fortune 500)
is somehing of a bellwether for the country’s
national economy.
However, being bullish on the man
and being bullish on the economy are two
entirely separate things. Speaking of his
own experiences with bankers, he discloses
that on the ground level, many projects
were being deferred. “Nothing tangible
has happened in the last few months,” he
admitted. Speaking of people losing faith in
the reformist measures, he said that there
was a certain scepticism that had crept into
the economy.
But how affected are these companies
by policy changes at the top level? “Reliance
industries, irrespective of the government
in Delhi, always takes up large projects,” he
confirms. Judging by some of the export
finance deals such as its US$550m deal
signed in April 20149
, and the Kexim-
backed US$750m loan signed the following
September, he’s got a point.
Wll Modi’s fiscal strategy work? Time
will tell and, in the meantime, it’s looking
good for trade.
Nidhi Pandurangi is a Indian accountancy
student and has been interning at TFR
from the City University's Masters' in
Financial Journalism course
References
1. For further background to India’s trade
and trade finance, see www.tfreview.com/
node/10316
2. See www.whitehouse.gov/
blog/2015/01/26/highlights-president-
obamas-visit-india
3. See www.tfreview.com/node/10814
4. www.makeinindia.com
5. See www.dnaindia.com/money/report-
narendra-modi-gets-cracking-on-made-
in-india-plan-2028272
6. Announced on the Reserve Bank of India
website at http://bit.ly/1B9WJNJ
7. A point made by Afreximbank’s Jean
Louis-Ekra about that other emerging
economy, Africa. See www.tfreview.com/
node/11371
8. www.pharmabiz.com. 19 March 2015
9. www.ril.com/downloads/pdf/PR23042014.
pdf
“Lower commodity prices
mean lower working capital
needs for commodity
traders”
RAKSHITH KUNDHA, BANK OF AMERICA
MERRILL LYNCH
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