'FDI Policy Helps To Propel The Economy Into Investment Mode' Mahesh Singhi, Founder & MD, Singhi Advisors
What role can an enabling and investor friendly FDI policy play in boosting M&A investments for emerging economies like India?
Policy initiatives like the repeal of retrospective tax can be dubbed as a pragmatic measure having the potential to position India as a global investment destination. It is a symbolic expression of the government’s firmness and decisiveness to clear the path ahead for boosting investment inflows in the country. Investor friendly policies help build positive atmosphere and do not create confusions for incoming investors, facilitating improved decision-making. Similarly, the roll-out of Production-Linked Incentive (PLI) schemes across multiple sectors will attract large-scale investments and bolster Indian manufacturing. Apart from fostering a robust M&A regime, an enabling and investor friendly FDI policy helps to propel the economy into investment mode. This eventually creates a better economies of scale and competitiveness enabling corporates to think of consolidation or facilitate the entry of new corporates into business through acquisitions.
How can the government strike a fine balance between bolstering the M&A ecosystem in the country and averting predatory acquisitions of weak companies?
It would not be an exaggeration to say that the law of the jungle prevails in the highly competitive business ecosystem. It is not always the written rule that big companies are predatory & strong while small companies are weak or pray always. In simple terms, if a corporate entity cannot adjust to the fast-changing business volatilities or does not have resilience or inner strength to survive, it makes practical sense to leave that position for other entities to occupy. It is a known fact that no business will remain static after changing hands and the capital unlocked from such divestments will also move back to formal economy, one way or the other. The money realised from the stake sale, whether partial or whole, will find its way back in the economic system and will not remain idle. It may be routed to the equity markets, parked with banks or be channelled into some other business investments helping bootstrap the business ecosystem.
Acquisitions are pushed to enter new markets, diversify, develop new competencies, isolate marginalised players / weak links or eliminate business competition. When acquisition is used as a tool to end competition and gain market monopoly, it can be said to be a highly predatory business practice else these are all need based. The Competitive Commission of India (CCI) has put into place provisions to deal with such issues and create a sustained competitive environment in the country to protect the interests of consumers. There is always a thin line between predatory and need-based acquisitions and the underline objective of the acquisitions must be studied to gauge the intent behind any such transaction.
Please comment on how geological factors like rising trade protectionism and cybersecurity threats can adversely impact FDI inflows?
With a rise in global interconnectivity, risk factors linked with trade protectionism, inward-looking govt policies and cybersecurity threats are on the upswing. Emerging geopolitical risks and fast-changing technological trends have significantly raised the spectre of unpredictability. Stakeholders across the global business spectrum will need to take these changes in their stride as and when they arise.
Can India’s FDI policy regime in its current structure and format be effective in maintaining a sustained M&A growth trajectory?
The country’s FDI policy has proven its effectiveness time and again in maintaining the pace and momentum of investments in the country including M&A’s. FDI reform measures in recent times have reiterated the government’s commitment to liberalize the economy. By removing market access barriers, serious investor activity and sentiment has been boosted across key economic sectors. The FDI policy in its current format has largely been instrumental in positioning India as a global investment destination.
In your assessment, how has the pandemic influenced FDI inflows into developing economies like India?
To put things into perspective, the pandemic created a strong need to devise a China + 1 strategy as global corporations looked towards diversifying their manufacturing bases and de-risking their supply chains. I would term this as a “China-1” strategy wherein companies exited China to set up base elsewhere in other countries. This phenomenon does not necessarily mean that India stands to gain substantially from this strategy alone. In the shift of businesses to more stable markets or lucrative geographies, supposing 100 as the index of the business which is incremental business taken out of China, India is not expected to get more than 20%. However, this incremental business itself is sizeable business gain for India. The pandemic has also led to the self-realization in India of being a self-reliant country in key sectors like health, social security, defence and internally driving economies. This has created an emphasis on the internal growth for Indian markets. Even if the country is not pushing for aggressive export competitiveness, domestic demand itself is good enough to sustain an attractive growth rate ahead. The delta of extra export or reduced imports because of China-1 strategy is going to give extra advantage to the Indian economy.
