The Indian government will allow foreigners to invest directly in its listed companies. Overseas investors have hitherto only been able to gain access to equities through buying funds. India hopes to woo back international capital after investors fled its markets last year.
What the commentators said
The move “is an extension of the gradual process” of liberalising India’s capital markets, said Standard Chartered bank’s Samiran Chakraborty. “But how much money will actually come?” The short-term outlook is “quite a challenge”. India was the worst-performing major stockmarket last year, while the currency, the rupee, was Asia’s weakest. Growth has slid unexpectedly sharply after 13 interest rate hikes by the central bank. The slowdown means that the government’s deficit target of 4.6% of GDP is likely to be breached.
Inflation remains high at around 9%, and the tanking rupee is making it worse. The central bank’s hikes weren’t enough, said Lex in the FT. India is now paying “the price for not capping inflation when the economy was robust enough to withstand tougher monetary policy and a curb on government spending”.
Corporate corruption and foot-dragging on reforms have also damaged sentiment, said Tom Bawden in The Independent. The government performed a last-minute U-turn on allowing foreign supermarkets to enter the Indian market. Given all this, the government’s latest move, while welcome in itself, is unlikely to tempt investors back quickly. Indeed, said Lex, after the supermarket U-turn, it just underlines “the government’s failure to open its economy more broadly to long-term inward investment”.