India’s Crossed Anti-Corruption Communications
Indian shares were off 6 percent through the first four months, at the bottom of the major Asian pack, as the trial of the former telecoms minister began who is accused of shortchanging the state of $40 billion in revenue through crooked license awards. Several high-profile officials and business executives have been ensnared by the court proceedings the Singh administration has cited as an example of its “no tolerance” anti-graft stance. Big listed family groups like Tata have criticized his team for poor regulation and public services, and a slow reform pace after unveiling an ambitious agenda upon re-election. It has concentrated on overseas as opposed to domestic expansion, and warned of wide-scale social unrest in the wake of the phone and other scandals. The financial sector may soon liberalize private insurance and pension fund segments, but local elections scheduled in the coming months may reveal the depth of the ruling coalition’s unpopularity and compel Congress Party leader Gandhi to tap another prime minister. The federal government in April moved to assuage foreign direct investors by ending repeat approval requirements for new commercial units after initial establishment. The last fiscal year these inflows were $22 billion compared to the previous annual $38 billion total. British companies are embroiled in a series of tax and environmental disputes which UK Prime Minister Cameron raised during a recent bilateral trade visit. On the portfolio side, outflows have replaced 2010’s record allocation despite increases in FII ceilings and domestic mutual fund opening to retail subscription in the latest budget. Asset manager stocks immediately jumped on the announcement, but the securities supervisor SEBI still has to draft rules for entry, and cross-border clashes may result from different commission and customer verification approaches. The vehicles must also vie with the spread of dedicated ETFs in the US, Europe and Asia that already enable ready access.
The other regional “I,” giant Indonesia, has tried to present itself as a compelling alternative and was further motivated as the original BRIC club formally added South Africa as its first new member. It advocated for an investment-grade rating at the recent G-20 Washington gathering, and the central bank pointed out that international holdings of its bonds were again at one-third the amount outstanding despite the imposition of short-term maturity limits. A secondary bank reserve set-aside also went into effect in March, although the benchmark interest rate was maintained as inflation hovered at 6.5 percent and fuel subsidy removal was postponed. In external accounts, coal, natural gas and palm oil exports have soared, although on the flip side payment and repatriation transfers also increased to an unprecedented $20 billion last year signaling mixed communications.
