India is fast re-emerging as a good business destination among foreign investors, but they need greater assurances for stability of taxation and other policies before they start making strategic investments here, global investment banking giant Rothschild has said.
“The business community and the Indian nationals living outside the country trust this(Modi) government far more than the cynicism that has grown here lately,” Rothschild India Managing Director Amitabh Malhotra said.
He said that a large number of business deals are taking place, although there has been some dip in the recent past and the majority of transactions are happening in the private equity space.
“Are we seeing a lot of strategic deals happening with too many foreign companies coming to India? No, I think there is still a requirement to re-establish the faith in the country for that,” Malhotra told PTI.
“They (foreign investors) are looking at us positively, but it is not that there is an Indian company which has put itself on the sale path and there are ten foreign suitors lined up.
“There used to be a time when 5-6 foreign firms were bidding for an asset. That time has gone. Today if you have one, you have the process going on with that only,” he said.
When asked whether some policy changes were required to kick-start the momentum, he said, “We need to look at why they are not falling on each other to come here and acquire companies.”
Malhotra said the foreign companies have still in mind what happened in the past.
“They have burnt their hands in the past by the fact that there was no predictability and no basis for certainty on regulatory aspects — be it taxation or FDI.
“While FDI thing has been far more consistent, on taxation there have been worries. Today you are a tax haven, tomorrow you are not. Today you do not have to pay taxes, tomorrow you have to. You have to pay prospectively today and tomorrow it becomes retrospective,” he said.
Malhotra said the foreign companies have begun finding it difficult to convince themselves, their decision makers and shareholders, that India is a healthy destination for doing business.
“There are so many positive aspects, be it a fantastic human capital, skills, a large consumer market or a democratic system. But they say now, look at what has happened in past so many years. That is one part where they have not been assured that what has happened in the past, would not happen again,” he said.
Malhotra said that different people are looking at India in different ways.
“If you look at pharmaceuticals sector, some company might come here for a manufacturing base, some others might come for a big market,” he added.
To a question on whether there is a risk of investors sitting on the fence going away if things do not change fast, Malhotra said, “Yes, capital is fungible.
“Ours is not the only destination that is asking for capital or attracting the capital. There are ten other destinations.
“If the index of ease of doing business puts us down, as compared to other destinations, then they will go there.”
Stating that he remains positive, Malhotra said, “I think this temporary or interim blip is only going to make us stronger. We understand the issues because we have faced the consequences. With the sufferings, we will come out stronger.”
Malhotra said there has been a tremendous positive change in the sentiments after the new government came in last year.
“That welcome change was not seen through the political eyes, but the eyes of the business community here and abroad.
“Some of the people outside India had been bruised badly in the past. We undertook a trip for an India roadshow in November last year and it was still difficult to convince even people sitting on the fence, who had bad experiences earlier, to come to this side of the fence.
“…But the good thing is that they have been looking favourably at India all over again. The whole momentum has tilted in favour of India as a destination.”
Malhotra said the positive change in sentiments broadly remains in place even today.
“We (Rothschild) ourselves have been a significant beneficiary. Last year was one of our best years on the back of transactions and we also were rated number one M&A house for the period ended March 2015.”
He further said that the macroeconomic conditions have also become significantly favourable, including on fronts like inflation and interest rates.
Besides, capital markets have already given a thumbs up to the government.
“There have been some bit of fluctuations since the beginning of this year, though last year it was only upwards. But some bit of correction is also very important.”