Soon after Prime Minister Narendra Modi delivered a knockout speech at Madison Square Garden, CNBC-TV18's Shereen Bhan caught up with a Wall Street veteran to see he made of the speech as well as whether he believes Modi's election will serve as the the next big trigger for spurring foreign investments into India.
In the this interview, Parag Saxena, founding general partner and CEO of New Silk Route Partners, a venture capital firm, discussed his analysis of the speech.
Also read: Once-banned Modi woos diaspora at giant New York rally
Q: You were at the Madison Square Garden, the Indian-American community was enthused by what the Prime Minister had to say but there were a bunch of Congressmen there as well, do you believe they bought what Narendra Modi was selling?
A: I think they did. I had a chance to speak to several of them right after that. They had a little gathering near Madison Square Garden and I think they all came away seeing what a rockstar he is, a rockstar who as you know operated without lyrics. So, they came away very impressed by him.
Q: What do you think impressed them the most because we have seen Indian politicians make these promises before, opening up India for business, from moving red tape and so on and so forth. Why do you think that they would believe Narendra Modi in comparison to what we have seen happen in the past?
A: I do think there will be a wait and see on that. Since the damage from the past in believing that and then not having fulfilment is still fresh. It is a recent enough wound that people will remember that. I think there is a great deal of belief that here is a person who has come in with an actual majority, who seems like a firm person - a person who speaks strongly, a person who has come out like a lion to say here is the agenda that I have - this is my clean agenda, this is my small vision. I think he did that brilliantly in the way he conveyed that and the US Congressmen that I spoke to afterwards were very impressed by that.
Q: But is that also a concern the fact that he is this lion, this strong tough guy who may not perhaps play ball with the US on matters in which the US would like India to concede and give ground?
A: While people are concerned that Gujarat may not scale up to India, they do allow a great deal for the fact that Gujarat did have some very significant developments. When you speak to anybody who has done a little bit of reading or has visited India whether it is the average American or whether it is somebody from Congress, they do know about that experience. And they are assuming that that's a good proven state.
The US has had many state governors like Ronald Reagan, Bill Clinton who have gone on to become very successful presidents and so they see that that's a model that has worked inAmerica, probably it is a model that works in India. Of course the complexities are different, India is more like Europe in the sense that we have many different languages and systems, more complexity of religion, etc which may be harder to handle. However, people are given to being optimistic with the wave of optimism that he has brought in.
Q: We are seeing sentiment change, the mood has definitely improved over the last couple of months, even before Modi actually took office in the hope that he would take office and since then we have seen sentiment change and improve. But there is also a concern that expectations are so high that if this government doesn't start to deliver on the promises that the PM is making that we will see the degree of disappointment being proportionate to the expectations, which is not good for India.
A: What comes up must come down as they say. You are right but the question then becomes how much time do we have? Do we have enough time till the next Budget because by then delivery must happen? But the world has changed in the sense that if we go back 20 years, the Budget was the primary mechanism for delivering policy change but today that is no longer so. People take interim steps upto the budget and it is up to the government.
So the PM has laid out some things that are really important for him and laid out the rationale for those. I am talking about things like sanitation or cleaning up which is a subset of sanitation. So he has laid out some of those things.
Now he has begun the 'Make in India' programme and it was a beginning on how he is going to make it easier for you. He clearly understands these things extremely well. He has an intuitive grasp of them which is remarkable.
He comes across as being an extremely practical person who understands these things and wants to simplify this stuff. Everybody loved the lines that he said: "I want to break all the rules that are unnecessary". People like that so they will expect that but he does have to deliver.
Q: For instance? What do you think they need to prioritise and deliver on over the next 3 months?
A: If you think about what international investors are most afraid of is this business of retroactive something.
Q: Which they haven't done anything with. They have set up a committee, the law stays, they have of course articulated publicly several times over that they don't intend to go back to an era of retrospective action but is that enough, are investors convinced with that?
A: I think they need to say something more strongly than that. Something actually needs to change. How GAAR will be dealt with, there is no clarity on that. I think those are steps that must be taken and must be taken before the Budget comes about because people are going to look for certainty on those things before they put down serious money back into India.
Q: He had a meeting with top CEOs of corporate America, in a sense preaching to the converted because these are guys who have already put significant amounts of money into India. So the hope perhaps is that they will continue to incrementally invest in India and also spread the message and get new investments coming into India. Do you believe that big ticket FDI is likely to come in only post the next Budget or when we do see clarity as far as some of these issues are concerned?
A: Big ticket FDI is certainly going to wait. Corporations are cautious by nature. They want to see proof of things, they will not do it on expectations. People who will perhaps act a little bit on expectations are to some extent private equity players which from the point of view of India and I say this being someone in that business, from the point of view of India it is actually just as attractive money. It builds, it builds for the long term, it does not come in and leave and they might take a little bit of a leap of faith but they too before real money comes in, before the kind of FDI that India should see which is USD 50 billion and above before that kind of money comes in more certainty has to happen.
Q: What would convince private equity to come into India in a much more significant fashion? The KKRs of the world have been around but the fact remains that exits have been hard, predictability has been an issue, certainty has been an issue, what do you think will be the triggers to really get big ticket private equity money into India?
A: I think you hit the nail on the head with the first one of those, exits have to happen. People are sitting around especially with the wave of money that came in 2007-2008 but less than 10 IPOs have been filed since the election -- that is a stunningly low number. We should see 10 IPOs a week at some point in time not in months. So, that has to change.
Q: Do you see that picking up? Do you see the IPO cycle picking up? We have seen a few in the last couple of months but do you see a more robust IPO pipeline in the making?
A: I do see more filings happening at this point in time. So, that needs to translate into IPOs. I would expect that post Diwali you will start to see more activity on that front and more IPOs will happen. That should lead to the beginning of a virtuous cycle. Money going back to people should attract more money into the country. As investors receive capital back from investments with a profit they should come back into the country, I think you should see that.
The early QIPs that were done have not done well. They raised very large sums of money and they have had negative returns. So, that was not a good beginning. On the other hand we have had a couple of IPOs that have done extremely well, the one in the logistics space which has done extremely well. So, once you see a couple more of those happen you could possibly see a wave of money.
However interestingly it is not just overseas money, a very large part of what the country needs to do efficiently is to mobilise the capital internally not just the capital externally. External capital will come in, it will compare India to other countries. So, there is a extra hurdle that you have to go through.
Would you rather put that money in a very cheap Russia, there are lots of issues with Russia but it is very cheap. Would you rather put that money in Brazil, would you rather put that money in South Africa, you will have those comparisons. However domestic mobilisation of capital is another thing which should be done. IPOs after all must also be funded by locals.
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