Deepak Lalwani's India Report
My
thanks to the author for his informative
report. Here is a sample:
Negative feedback continues from foreign investors and local businessmen to India's tax proposals and retrospective action (see India Report of 30 March). A co-ordinated group of international trade associations representing more than 250, 000 companies from the UK, US, Japan, Canada and Hong Kong have written to India's Prime Minister, Dr Singh. They have diplomatically, but very clearly, warned that overseas companies may re-consider their India investment plans. This follows an open letter last week to India's Finance Minister from Asia's securities industry trade body, Securities Industry and Financial Markets Association. The body, which represents institutional investors, raised deep concerns about the future trend of India's business and investment climate. The proposed retrospective tax changes could affect Vodafone and others.
The Indian Government is perhaps hoping that the country's long-term economic growth potential will stop companies like Vodafone leaving India. Especially at a time of recession/weak economic growth in developed countries. However, poor investor sentiment may dramatically slow future foreign capital. India's trade deficit (about 9% of GDP) and current account deficit (of about 3.5% of GDP) are among the highest of many peer emerging economies. Financing this will have to be borne in mind. While India is perfectly justified in reforming taxes to close loopholes any change should be prospective, and not retrospective. After all, a balance of payments crisis could occur not just because of foreign capital fleeing India, but because fresh foreign capital dries up. Thus not helping to finance deficits. And, tax revenue could be hit hard if investments slow down - which help produce profits in the first place.
David Fuller's view This is good advice and India's government
needs to remember that the businesses which it seeks to attract are often 'spoiled
for choice' in terms of various opportunities for development.
India's
stock market (weekly & daily)
has steadied since commencing its reaction and consolidation with a key day
reversal on 22nd February but needs to break the recent progression of lower
reaction highs to reaffirm support near 17,000. India's Bombay Banks Index (weekly
& daily) is marginally firmer,
currently, and tends to lead.