The upcoming Budget is expected to bring clarity on the lines the new government is going to work over the next few years. It is not just the people, but even global rating agencies and investors are waiting to see the stand the government takes. Andrew Steel, managing director and head of Asia Pacific Corporate Ratings at Fitch Ratings told Sandeep Singh that investors are looking at better governance and less red tapism. Excerpts:
How do you see the election outcome in India and what would be your expectations from the new government?
I think that there is more chance to implement the structural changes now than it was under a coalition government.
A clear majority has not happened since 1984 and the government has full control of lower house which means that if the government has inclination and will to implement reforms then it can actually push them without having to compromise or negotiate. However, the ease of doing that and impact of the same is not easy for any government because the types of reform we are talking about have far reaching impact on population. The balancing act, however, will be a difficult as some of the things they want to do are conflicting.
While on the one hand they want to keep inflation down, they also want to reduce subsidy which means market pricing of goods which pushes up inflation.
How do you see India from a sovereign rating point of view and what would you expect from the upcoming Budget?
From our sovereign analyst perspective they want to see tackling of fiscal deficit on a sustained basis. This is an opportunity to do something structural and an indication on that is something that people would like to see in the Budget. While announcements on things to be implemented immediately may not come now, there may be statements on what they intend to do in the next Budget.
What kind of structural reforms would you like to see?
In terms of foreign funding, what investors are looking for is less red tape so that it becomes easier to get projects implemented with fewer uncertainties.
They are also looking for better standards of governance. If they come then you can also facilitate things for Indian companies. For example they (government) have waived withholding tax on infrastructure projects for the time-being, if that is extended to other sectors, it perhaps will not have an impact on inflation and deficit but will give freedom to corporates.
How do you see the investor outlook on India?
It’s mostly wait and watch, the outcome of Budget will be a major thing. There is lot of pent up demand for investment in places like India that people have seen for a very long time and if they see the right indicators, they will come in for first mover advantage.
The issue for external investors is — I put cash in, I want cash out and I want my return. So people who look at investing in projects, very much want to have an idea of where the risks are to their cash flow and how to control that. Some of those risks are government related and are outside of your control and then its very difficult to attract investors.
They don’t want to see white elephants. They have choices. It is a very global world and so they look at various countries like Indonesia, Philippines, India etc and they compare them. They will see that for a power project there is more regulatory certainty in Indonesia and so will go there.
Recently the government decided to raise the rail fares. How do you see such steps?
That is being seen by our sovereign team as a positive. What they want to see is things getting translated into action. There needs to be a kind of sentiment where one says that the structure has deteriorated and needs to be improved and someone has to pay for that. After all you are not in structural surplus.