India has an enormous opportunity to carry out more reforms and it could boost foreign investor confidence if the government prioritise economic growth in the Budget 2020, said Teresa Barger, co-founder and CEO of Cartica Capital. Overseas investors are right now at this perfect confusion point that whether this is a cyclical downturn or a structural downturn, added Barger.
A keen India observer and influential FII voice, Barger said, "Investors will be pretty positive, pretty inclined if growth were prioritised. Even more than that, what they need is certainty and that has been a part of the Achilles heel for India in the last two years."
She said the Indian economy is expected to improve in the second half of 2020. “A year and a half ago, we were very overweight India and we are now simply overweight India. That cautiousness is from the policy noise,” she noted.
Formalisation of economy
Productivity is an issue in India and it could improve through more formalisation as companies do come into the formal tax net, said Barger. "They have an opportunity to become companies that have the ability to borrow and then they can get to scale."
"The investment opportunity is to buy the companies that are already formal and will benefit from their competitors either shaking out or coming together or purchasing them,” she noted.
Foreign investors would also appreciate progress on matters like property rights and corporate law, she said.
"India is building infrastructure, there is an enormous opportunity for reform. A lot of foreigners look at India and they say it is a little tough. But the first time I came to Mumbai was in 1987 and it is so much cleaner and more orderly. So things do progress," Barger mentioned.
"How are you going to enforce hundreds and thousands of laws? If we could focus on the few things that matter and enforce those. If we don’t get the reforms, the cyclical downturn could become structural.”
Corporate governance in India
Barger said Cartica Capital separate corporate governance from other issues but in India, there is an overlap as all the companies are family-owned and often the CEO is the family-patriarch
"We look for companies where the promoters want to do the right thing, which means that they want to run the company for the benefit of the shareholders. So we have had a variety of experience in corporate governance. So a lot of it has been quite good,” she said.
“When you look at the government’s ratings, it is the larger-cap companies, which have better ratings on corporate governance because they have had more pressure on them to take the time to put in the structures and processes for corporate governance."I think that IL&FS debacle showed the five layers of government’s protections fails and that was a blow to confidence in India,” she added.