Calpers entry into Indian Stock market

Calpers entry feeds global appetite for Indian market

Calpers entry feeds global appetite for Indian market


Bangalore: Kiran Mazumdar Shaw has earned her spurs as the biotech mascot of India. In its latest issue, Newsweek International talks of how 60% of the shares in Biocons recent IPO were offered to, and quickly snatched up by, foreign institutional investors. Biocon is being touted as a testimony to foreign investors new found love for India over her arch-rival China.

The fact that India is currently the toast of the world for investments gets confirmation from Newsweek in its cover feature titled Best Countries of the World. The magazine considers the decision of the $165-billion US pension fund Calpers to invest in India as a sign that India has arrived on the global investment canvas. And rightly so, since Calpers is known to enter only those markets where corporate governance is strong.

A prime minister who scripted Indias right turn during his tenure as finance minister has also helped place India over China in investor friendliness. His reforms led to a significant devolution of power from the Centre to the states and regional offices, helping to speed up decisions, enhancing the competitive environment for corporates, and linking IPOs to market prices.

And now P Chidambaram has introduced both a pro-poor and investor friendly budget by pushing up the FII cap in the debt market and raising FDI limits in key sectors. But how investor friendly is India compared to other competing Asian nations?

For one, the country offered a higher average return on investment (ROI) than most other Asian countries as of December 2003in India, the ROI was 19.3%, while it was 14.25% in China and 13.3% in Thailand. Indias ranking in availability of engineers and skilled labour is also well above Chinas.

The Global Competitiveness Report 2003-04 of the World Economic Forum ranked India several notches above China. In the Business Competitiveness Index, Indias rank was 37 (out of 102 countries) as against Chinas 46. India was the worlds top-ranked country in terms of the number of competitive firms. Besides, it ranked third in the availability of engineers and scientists, sixth in terms of its policy on allowing foreign technology, and fourth in access to credit.

There is certainly a rush among investors to enter the Indian market. But the catch is that only about 40% of FDI approvals translate into actual investmentimplying that investors lose enthusiasm in the process of securing the necessary approvals and legal clearances.

The cost of business formation (relative to GDP per capita) in India is higher than in the rest of Asiawhile it stands at about 50% in India, it is less than 20% in China and even lower in other south-east Asian countries.

While trade policies have been gradually reformed, with most investment areas requiring only general licencesreform needs to be speeded up on industry policies and red tape. Another problem that investors point out is Indias infrastructure, which needs serious overhaul.

While Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, hinted that this would be a major focus area, the issue hasnt been seriously tackled by the Centre or state governments.

The World Economic Forum report said India has the potential to get over $15 billion in FDI each year over the next five years.

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