Prime Minister Narendra Modi will today virtually meet the world's leading global pension and sovereign wealth funds, which cumulatively manage assets worth $6 trillion. The Virtual Global Investor Roundtable (VGIR), chaired by Modi, is expected to be an occasion to showcase the reforms India has been undertaking to attract global investments and seek the opinion of the institutional investors to sweeten it further. What is the reform claims India will make in VGIR? And what could be the reforms that institutional investors will still look for?
At $35.73 billion, foreign investments in India this fiscal is the highest ever for the first five months of a financial year, but that doesn't mean India is the most attractive global investment destination. The country has been improving its status as an attractive investment destination, but investments decisions are not made purely on domestic conditions alone.
The timing of VGIR brings in twin advantages. It comes in the backdrop of several efforts made by India to improve the country's investment climate. It also comes at a time when investors and companies are looking to de-risk businesses and investments by reducing dependence on China as a production and sourcing hub and spreading out to other regions, including India.
Due to the same reason, Modi will try to list out all the investor and industry-friendly measures the government has taken in recent times. He can begin by showcasing India's sustained improvement in the Ease of Doing Business (EoDB) ranking over the years.
India ranked 63 in World Bank's "Doing Business 2020" report. It was a 79 positions jump from 142 in 2014, to 63 in 2019.
The second reform the government can claim is in the area of its foreign direct investment (FDI). Almost every sector today is open to foreign investments.
The third will be the tax reforms. "If you see our corporate tax rates, it is one of the lowest in the world. We compete with a lot of other low tax rate jurisdictions...the government came out with policy statement that they will simplify tax rates, remove exemptions, lower corporate tax rate, etc...they delivered on that. Today, India ranks as one of the top destinations in terms of competitive tax rates. So that is a good thing from an investors perspective," says Vikram Doshi, partner, tax and regulatory, PwC.
"The other thing that happened is the decision to remove DDT (dividend distribution tax). The DDT was always thought of as a cost of repatriating profit because the Indian company was paying it. Now DDT is not there anymore. So, technically there is only dividend but it is fully creditable in most places in their home countries," Doshi adds.
Modi could also talk about the Atma Nirbhar Bharat campaign and the government's decision to offer production-linked incentives to encourage local manufacturing. The scheme, which started off to promote local manufacturing of mobile phones and certain components, has extended to the pharmaceuticals sector. A host of other products are also expected to benefit from similar schemes in the coming months. The farm sector reforms aimed at bringing private investments in the agriculture sector and the labour reforms meant to make employment conditions industry-friendly are recent measures that will be showcased.
The stability, driven by the majority support the ruling party enjoys in the Lok Sabha and the Rajya Sabha, will also help Modi project a strong and determined face towards reforms that he may undertake in future.
EXPECTATIONS FROM INVESTOR ROUNDTABLE
Doshi says the government needs to do a lot more, especially on business friendliness or EoDB front. "Ease of doing business is a combination of both perception and reality. The perception has been doing well. But EoDB has to continuously improve because we are still below in ranking or competitiveness as compared to several other favoured destinations in manufacturing. And if we have to compete with the developed world, we have to do a lot better," he points out.
Doshi also says the government's decision to scrutinise or restrict investments from countries that have a land border with India should be followed with clear guidelines in terms of what will be approved, process, key factors, timeline, etc. "If those policies are spelt out, it will help, not much in terms of additional investments, but also in improving the perception that India's policies are turning more transparent," Doshi adds.
The ability and process to acquire land at reasonable rates may also be a factor that large investors find attractive. World-class infrastructure is another factor. "While India's infrastructure has increased significantly over the years, when we compare with other countries -- whether it is the supply chain, logistics, road infrastructure -- in competitiveness scale, we have a lot of scopes to improve," Doshi says.
Finance ministry and National Investment and Infrastructure Fund, the organisers of VGIR 2020, state the roundtable will provide an occasion for all stakeholders - top Indian business leaders, global investors, government officials - to further cement the strong partnerships that have been built and to foster engagement with international institutional investors who are looking to increase their Indian investments.
So, it's not just about changing rules on the ground, but about changing perceptions in the minds of stakeholders. Modi will not only list out the reform measures, he may also layout further reform plans. And that's what makes the virtual roundtable interesting.