Business sentiment is grim. Few corporates have the financial capacity to invest; even less the desire. The reasons are several, but the common thread linking all corporates is a problem about the direction and predictability of the policy and regulatory environment. There is a lack of self-confidence in the power of the management to convert the political guarantee of “ease of conducting business” into bureaucratic performance.
There is a “trust deficit”. The government will have to bridge this deficit to realize its economic growth strategy. The relevant question, therefore, is: What must be done to resuscitate investor sentiment? At a macro level, the answer is clear. Investors look for macroeconomic stability and a supportive regulatory and policy environment.
They are incentivised to get when inflation is in order, the fiscal deficit is within prudential limitations and the external account is broadly in balance. They need connected and effective infrastructure and the easing of source aspect “factor market” constraints. This means expeditious processes for land acquisition, flexible, and unshackled labor plan and deepened capital marketplaces unclogged from the choke of NPAs. They need competitive tax rates also, simplified procedures and transparent and fair mechanisms for dispute resolution. These are well known and sometimes articulated necessary demands. The issue is whether these are sufficient.
Is this all that is required to spur investment? I am not so sure. I really believe there is a subtler condition that needs also to be met. The corporate leader must think that promise will indeed convert to performance. His subjective preference is a non-quantifiable but important driver of investment decisions.
I was involved with a huge multinational for many years. What struck me was that investment decisions were often powered by personal perceptions. The investment proposals were, of course, subject to rigorous financial and geopolitical analysis. Empirical data was gathered on the market, competition, costs, regulations, and prices. Scenarios were created to capture the consequences of the unexpected. Sensitivity analysis was completed to define the number of possible final results.
But when the analysis was finally shown for a choice, the debate often focused on the intangibles of geopolitical, bureaucratic, and regulatory risk. And your choice was often driven by the leadership’s perceptions of these risks than by the hard numbers presented to them. I had been at the helm of the business at a time when China was the flavor of the international trader community.
- 10% on the first $9,700 = $970
- Understand you make investments as well, what exactly are your trading style
- The business entity idea means that
- Prior experience in investment bank and/or knowledge of the process and client expectations
- Cost of Commissions – Stockbroker’s charges for executing and then clearing a trade
I found myself continuously fighting perceptions. People knew more about India than China. But what they “knew” about India was mainly negative. Their conception was it was tangled within an undergrowth of red tape, bureaucratic encumbrance, and regulatory doubt. On the other hand, what they knew about China was positive, albeit limited.
They didn’t understand the investment environment. They did not speak the vocabulary; and Chinese culture was an enigma. But they “knew” China offered an enormous market with massive potential. This conception (and, of course, reality) was an important determinant of the ultimate decision. India also offered a huge market and potential but perception militated against a positive decision unfortunately. On at least two occasions, an investment proposal for India was turned down towards a project in China even though the projects were similar and the earning power of the former was greater than that of the latter.
The reason was the subjective predilections of the organization market leaders. UPA 2 will be appreciated for the ignominy of corporate and business scandals. The Telecom and coal scandals arrived the nexus between corrupt politicians and opportunistic businessmen. It had been crony capitalism at its worst. The bank problems has its genesis in this nexus. Modi 1.0 broke this nexus decisively. It ended what Raghuram Rajan has known as “a relationship based capitalism” where the quid of commercial “hospitality” was exchanged for the “quo” of political favors.