Invest in India infra only if brave or stupid: Ashok Wadhwa

Ashok Wadhwa, founder and chairman of Ambit Holdings is perhaps one of India's most consummate deal makers and also one of its most forthright commentators on the economy.

He started Ambit in 1997 after 14 years with Arthur Anderson. What started as a small boutique financial services company, is now a full fledged financial services company. In fact, it is one of the top three investment banks in the country.
CNBC-TV18's Senthil Chengalvarayan caught up with Wadhwa to find out his views on the economy and the road ahead for Indian equities. Below is edited transcript of Wadhwa's exclusive interview (first aired on May 11) as part of the Forbes India show. Q: The mood seems to have picked up in the market. It could be falling commodity prices; it could be sudden economic realisation in Delhi. But the mood has certainly picked up. Yet the RBI governor, in his policy earlier this week, sounded a pretty strong note of caution. Where are you on the scale of optimism?
A: I think the governor is right. The governor is looking at the fundamentals and saying there has really been no shift in the fundamentals from two-months ago to today. Yet, I think you make a good point that there is a wee bit of positive sentiment that seems to have crept into everybody's mind and thinking. Certainly has crept into the stock markets at this point of time.
So, I guess there is a bit of a conflict over here. The fundamentals don't seem to be reflecting it and yet some of the important barometers like the stock market seem to be showing a positive sentiment. The governor is trying to say, "I am not going to take any more positive actions unless I see the fundamentals move forward," which in a way is right because policy-making has to be based on not just on sentiment but on longer-term constituents. Q: How would you view the few green shoots that are coming out? One of course is oil prices coming down, gold prices coming down and the fact that the government seems to finally realise that there is an economy to manage. It seems to be making steps towards doing that. Quietly, they have allowed Ikea to come in; they are pushing up diesel prices.
A: I do agree with you that the commodity prices have come off and that is probably the most positive sentiment that is helping the attitude at this point of time. The other thing is that more money is being pumped into economy and emerging markets and India seem to be a favoured destination at this point of time.
Big foreign institutional investor (FII) flows, hopefully at some point of time big foreign direct investment (FDI) flows will all mean that India is a recipient of a larger does of this money that is being printed. So, we are rising with the tide at this point of time. I acknowledge the fact that the government has become cognizant of taking important initiatives, but in the situation in which the government finds itself and with new scams coming out almost every single day, I can't see how this government can take significant actions or steps that will demonstrate a longer term shift. Q: You say that will demonstrate a longer-term shift. So, you clearly agree with everybody that it is a shift from what’s almost been a decade of paralysis to some action. Some people go so far to say that it’s been a lost decade for India. Would you go that far?
A: I tend to disagree with that. I do think that there have been periodic and incremental changes in policy that have allowed us to step forward. You are right in one way that. Having achieved a significant movement, we have not been able to capitalise on it. What was really needed when Congress and UPA got the second term was a real push towards consistent and large policy reforms. To try and save it for the last two years was a very difficult proposition.
I wish many of the things that they tried to do in the last two years. They had done it in the first two years. I wish they had really gone through with the Direct Tax Code (DTC) without Vodafone and without the retrospective amendments. I wish they had gone ahead with the Insurance Bill at that point of time. (I wish) they had done something with the banking licenses. So, you have announced something in the banking sector recognizing and acknowledging that it is going to be very difficult for this governor and this governor has actually said that it is only the new governor who will issue the new licenses. So, will this government be able to issue new licenses? I doubt that too. Therefore, action is taken a little too late. Q: One of the factors that perhaps demonstrate the health of an economy is really how much its corporates are putting back into the economy. If you look at those numbers, they are pretty dismal. In 2008, investment by corporate India was almost 17 percent of gross domestic product (GDP). Today, they are down to 13 percent in less than five years. What are people telling you because you talk to a lot of top people in corporate India, why is this happening?
A: There are two common things on why not to invest in India. Theme number one is: the core sector that was going to invite/attract a significant amount of investment — the whole infrastructure industry. We have been hearing about trillion dollars required to build our infrastructure industry. We have been talking about how private sector needs to take greater initiative. With the type of policy that we have had, with the type of judicial intervention that we have had over the last two years—I am not saying judicial intervention is wrong, may be the judicial intervention was required given the way the policy was being implemented—but if you look at sum and summary of what has happened on policy—on policy paralysis, on judicial intervention over the last 2-3 years—I would dare say that you need to be an extremely brave and sometimes a stupid man to try and put significant money in India's infrastructure industry.
Let’s take the Etisalat and Etihad ruling. Why did the Etihad transaction take so long? Having had the experience that Abu Dhabi had on Etisalat transaction, they were keen to ensure that there was protection on whatever they invested on the next transaction. If large foreign companies, that have significant capital and interest in India, are going to be so cautious and so careful in making investments because they have had some biter experience, it doesn’t augur well for India’s infrastructure at all. So, where is investment in infrastructure going to come from?
The other part of it is capital goods. I have not heard a single businessman say— other than may be the refinery expansion that Reliance is undertaking—I have not heard a single large corporate house say, "I am significantly expanding my capital goods base in India". Q: Another cause for concern for you and lot of other investors soon after the Budget was the whole issue of the Tax Residency Certificate (TRC) and how it would be a necessary. But fortunately the Bill that has come out has completely omitted that section. Does that address all your concerns? Does it also show you that the government is prepared to listen?
A: We certainly have a regime at this point of time and related to our Budget 2013, which was extremely sensitive to understanding and providing assurance to global investors, I think this regime has understood one thing. Given our current account deficit, we must do everything possible to create a positive environment for FII and FDI investments to flow through. Recognising that sensitivity they make immediate and specific changes, crystal-clear, transparent in the way the regime would get implemented and that was good news.
If you contrast it to what happened exactly 12 months ago, it is such a welcome, isn't it? Q: But is it the nature of government and the nature of bureaucracy to always because it has been a recurring theme Budget after Budget after Budget.
A: I exited tax business. I sometimes wonder whether I did the right thing by exiting the tax business. But you are right. When it happens once in a while, you can say maybe somebody didn’t think through it. When it happens twice, you can say maybe the last time we didn't think through it, this time we erred. When it happens three times in a row, you wonder whether that is deliberate. Honestly, I would rather leave at that.