The private equity (PE) industry is a critical cog in the growth of the Indian economy, with the key function of providing not only capital to entrepreneurs but also operating expertise. Their ability to raise funds from global investors and deploy the same for the growth of Indian companies depends significantly on the attractiveness of India as an investment destination.
PE firms also need to fulfill investors' return expectations to keep the cycle going, which depends quite a bit on the macroeconomic scenario within India. The fortunes of the private equity industry are tightly coupled with both India's global image and its domestic macroeconomic factors.
In the current world environment, the economic success of a country is bound with its geopolitical success. And, over the last four years, the geopolitical environment has changed dramatically led by radical shifts brought about by the US under the presidency of Donald Trump.
China has been the biggest beneficiary of the globalisation of jobs and therefore, Trump has continuously implemented policies to nullify the trade advantage of China. As a result, the geopolitical tension between the US and China has also been on the rise with America flexing its military muscle in the South China Sea and forging alliances with Japan, Australia and India.
It's quite natural that with the rise of China as the number 2 global superpower, the US is bound to feel threatened and is expected to carry out everything in its power to keep China in check. Therefore, the tussle between the US and China is going to be a long-term trend, irrespective of a Democratic or Republican president in the White House, and especially when the public opinion in the US is against China.
In this context, a geopolitical partnership between India and the US looks quite natural with a significant alignment of mutual interests. The recent visit of Secretary of State Mike Pompeo, a vocal critic of China, and subsequent signing of a defence pact between the two countries also points to the same direction.
India, for its part, has also shown intent to partner with the US, leaving behind its strategy of balancing act. Economic co-operation goes hand-in-hand with geopolitical cooperation and therefore India and the US are expected to enhance their economic linkages as well.
The reorganisation of global value chains away from China has gradually started, especially in labour-intensive manufacturing. It is expected to gather further pace, penetrating high technology industries as well, with the companies in the US diversifying their procurement bases to multiple countries in Southeast Asia.
India can be in a favourable position across multiple sectors, especially where there is an element of engineering, computing and research such as chemicals, pharmaceuticals, auto parts, mechanical equipment and electronics. India also earnestly needs to take up labour reforms, which the Centre has already initiated, to grab market share in labour-intensive manufacturing as well. India's position in information technology is already strong with high coupling with US enterprises.
India stands to benefit significantly from this ongoing reorganisation of global geopolitics. Irrespective of whether the White House is occupied by Donald Trump or Joe Bidden, the ties between India and the US will only become stronger.
India's image of a major democratic force along with a large consumer market and availability of engineering and scientific talent makes it a formidable investment destination. The Indian private equity industry will continue to bring foreign capital to India and play a significant part in achieving the ambition of becoming a $5-trillion economy.
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(Mohit Ralhan is the Managing Partner & CIO at TIW Private Equity.)
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