Global investors upbeat, but cautious over pace of reforms

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Hong Kong | Published: January 21, 2015 12:55:40 AM

While global investors remain upbeat on India’s growth prospects, they qualify their optimism with caution over the pace of reforms...

While global investors remain upbeat on India’s growth prospects, they qualify their optimism with caution over the pace of reforms in the country, given its chequered history of implementing reforms, especially those pertaining to foreign investment.

Speaking at the Asia Financial Forum in Hong Kong on Monday, Michael Diekmann, CEO and chairman of Germany-based Allianz SE, said that India has the potential of being one of the pillars of world economic growth but has proven itself to be “investor unfriendly” in the past. “India is extremely foreign investment unfriendly. There is always an opposition to opening up of business,” Diekmann said.

The Allianz chief said that past promises made by previous governments to attract foreign investment into the country have remained unfulfilled.

Diekmann was quick to add that India was “a huge market” and the new government has been taking positive steps towards economic reforms.

Insurance companies like Allianz have been waiting for the Indian insurance sector to be open up to a greater participation from foreign firms. At present, India allows foreign firms to hold a direct investment of up to 26% in an insurance joint venture with a local partner. The government approved an ordinance in December to hike the FDI in insurance to 49%.

Ordinance appears to be the preferred route in India to implement key economic reforms. But ordinances must be voted on by the members of Parliament and converted into Acts. That is where the problem lies. Yasuhiro Sato, president and group CEO, Japan’s Mizuho Financial, pointed out that the Modi-led administration was in majority in the Lok Sabha, but a minority in the Rajya Sabha. For a Bill to be passed as a law, a majority approval is needed from both the houses. The political struggle is a cause of concern for investors like Sato.

But business leaders agreed that if these hurdles can be overcome, India could have a big role to play in the world economic growth. Ding Xuedong, chairman and CEO of China Investment, observed that if India’s economy could manage to grow at 6% this year, it could emerge the third engine of world growth after the US and China.

Diekmann said if the government and the RBI continued to deliver on what they have promised, a growth rate of 7-7.5% was possible in 2017.

n (The author is attending the Asian Financial Forum at the invitation of the Hong Kong Trade Development Council)

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