Posted by Mohan Kompella
on Aug 14, 2013 in India
| 0 comments
The Economist, in its latest edition, makes some interesting observations in its usual mildly condescending (“snarky”, the millennials might say) tone about India’s vital economic functions being outsourced to regional hubs in Asia.
As usual, much of it rings true and makes diaspora members such as myself cringe.
The largest hub for Indian trade is probably Singapore. It is the centre for investment banking, which thrives offshore, owing to the tight regulation of India’s banks and debt markets. Reflecting this, the global exposure to India of Citigroup and Standard Chartered, the two foreign banks busiest in India, is 1.9 times the size of their regulated Indian bank subsidiaries.
Fund managers running money in India are often based in Singapore. India’s best financial newspaper, Mint, now has a Singapore edition. At least half of all rupee trading is offshore, says Ajay Shah of the National Institute of Public Finance and Policy in Delhi. Investors and firms do not like India’s fiddly rules and worry that the country may tighten capital controls if its currency falls too far, says one trader in Singapore. He denies, though, that the rupee’s fall is mainly the work of speculators abroad. “The onshore guys have as much of a role,” he says.
Indian e-commerce firms often get their data crunched in Singapore, using web-hosting and cloud-computing firms, such as Google and Amazon. Amitabh Misra, of Snapdeal, says bandwidth costs less, technology is better and you avoid India’s headaches—such as finding somewhere to work, coping with state-run telecoms firms and having to wait to import hardware.
Singapore is also a centre for legal services. International deals involving India often contain clauses which state that disputes be arbitrated outside India, with its clogged courts. Singapore, along with London and Paris, has become the preferred jurisdiction. “The level of comfort Indian companies get from Singapore is unmatched,” says Vivekananda N of the Singapore International Arbitration Centre.
Dubai (ignore the Dawood Ibrahim bit):
Dubai’s ports, air links and immigration rules also make it a better logistical base than India. Dawood Ibrahim, a Mumbai mafia don, ruled from Dubai by “remote control” before eloping to Pakistan in 1994. Since those wild days legitimate Indian firms have thrived in Dubai. Dabur, which makes herbal soaps, oils and creams, runs its international arm from there. Dodsal, which spans oil exploration in Africa to Pizza Huts in Hyderabad, is based in the emirate. Its boss, Rajen Kilachand, moved from Mumbai in 2003. “Dubai is a good place to headquarter yourself,” he says, adding that a “Who’s Who” of Indian tycoons has a presence. Dubai is gaining traction in finance, too. Rikin Patel, the chief executive of Que Capital, an investment bank, says Indian firms are raising debt in Dubai to avoid sky-high interest rates at home.
About 5,000km (3,000 miles) south of Dubai lies Mauritius, an island so beautiful that Mark Twain said God had modelled heaven on it. About half its people are descended from labourers brought from India when Britain ruled both places. It is the main conduit for foreign investment into India with 30-40% of the stock of foreign capital sitting in funds domiciled in the island. A 1982 tax treaty allows investors using Mauritius to pay tax at the island’s rate (which, in practice, is zero), not the Indian rate. Foreigners also like the stability of Mauritius’s rules and its army of book-keepers and administrators. Many investors also use “P-Notes”—a kind of derivative with banks that gives them exposure to Indian shares without having the hassle of directly owning them.
At what point will the Indian government learn from these better managed, well-run hubs? And make sweeping changes to both its laws and enforcement mechanisms to attract jobs and economic activity back to its shores?
Or, given its fractious politics, an elite that doesn’t care and the inability of the masses to endure short term pain in the interest of the long-term, can it?