While you're choosing between Barbie and Oppenheimer, it's important for investors to make their decision of investing in India. Didn't get the reference? Read along...
India's Positive Transformation and Growing Investor Interest
To become a world power, any country must focus on developing markets, increasing consumer spending, attracting foreign investments, and implementing transformational policy changes with transparency. India, with its potential to become a significant global player in the coming decades, has made strides in policy-making and digital transformation since 2014, but there are some aspects that warrant deeper examination.
Deemed to become one of the world's significant powers in the forthcoming decades, as India, we have a couple of thing to look at deeply. Over the past few years, India has seen positive changes in its business and investment ecosystem, with policy decisions driving growth and leading to an improved economic performance. At a time when US is coming up with FedNow in 2023, Indian digital transformation and the banking system was way early on this trend and has transformed into what the developed nations couldn't.
The Govt. is taking cognisance of the fact that better policy decisions can drive growth in the country and can lead to better economic performance and is investing heavily in the infrastructural space too. All this has led to a more conducive startup ecosystem and stronger push for "ease of doing business". In fact, from 142nd place in 2014, the country has jumped to 63rd place in 2019 in 'World Bank's Ease of Doing Business Ranking 2020'.
The Indian startup ecosystem has experienced continuous growth and there is a cultural shift driving Indians to be fearless while making the ecosystem more mature and embracing organic growth in the investment spectrum. While startups often cater to Indian consumers, a significant portion of funding comes from foreign investors. In 2022 alone, out of the total $26.8 billion raised by startups, an impressive $26 billion came from foreign sources alone.
Investor Woes - Navigating Policy Disruptions
Investors follow a simple funda, invest in companies that are bound to grow, help them with the resources they need and make massive returns. That's the reason they flow money into new-age companies across the world. Several prominent investors, such as SoftBank, Sequoia Capital, and KKR, recognised the potential of Indian startups early on and invested heavily in them, long before Apple acknowledged India's potential. And to some extent, it's quite understandable that while India was creating policies, these investors were far-sighted and flushed billions of dollars to see these companies create a true impact and in turn, become big.
However, a concerning trend has emerged that may cause some investors to become wary of future investments in India. The government's tendency to change policies abruptly has led investors to reevaluate their decisions.
Policy Volatility
Hot in the news, following a recent GST council meeting, the government has decided to levy 28% GST on the gross value of transactions on online gaming, casinos and horse races. This news has sent shockwaves through the online gaming and fantasy sports industry, valued at around $2.8 billion in 2022 (Source: CNBC). Surprisingly, this industry had been actively encouraged and supported by the government, aiming for rapid growth to establish India as a significant force. However, with the unexpected introduction of this tax, the industry was caught off guard. While this goes through, a fundamental question arises; "
Can an industry that the government has embraced and acknowledged for its growth over the past decade, contributing significantly to employment and tax revenue, now serve "just" as a means for the government to generate additional revenue?
And if so, what potential downturns might the sector encounter as a consequence of this decision?
Disruptive Innovations and Investor Confidence
In considering another perspective, the government's assertion that "it is of no business for the government to be in business" raises important questions. Although I agree with this stance to a certain extent, the creation of India Stack has sparked widespread discussion. While Aadhaar and UPI have laid the foundation for India's true digital economy, the introduction of tools like ONDC appears to have adverse effects on companies that have painstakingly built their businesses and investors who have heavily invested in these high-growth startups. Given that Indian consumers are price-sensitive, it becomes evident that while ONDC might promise cost reductions, it may not offer comparable service quality, thus allowing other companies to thrive in that particular niche. Companies like Flipkart, Myntra, Amazon, Zomato, Swiggy, and others have invested years in building their businesses, creating markets, generating employment, and attracting foreign investors. However, with the introduction of ONDC by the government completely, operations of these companies will certainly be impacted. So here are a few questions to be asked here:
Do companies receive enough recognition for their revolutionary innovations?
What message does this send to investors who have placed their trust in these companies for higher returns?
Who will cover up for their business operations?
Does the government's attempt to formalise everything indicate a move towards a government-commanded open economy?
What's next?
With these drastic measures, investor confidence has undeniably been shaken, raising a pressing question they may contemplate: Is it worthwhile to invest time and resources when the government's decisions can sway it all away?
While I acknowledge and appreciate the government's initiatives, such as the National Logistics Policy, New Education Policy, National Air Sports Policy, and the Make in India initiative, it is evident that certain areas, such as the e-commerce and gaming sectors or the creation of an open stack, present a dilemma for investors.
In conclusion, I think that the right approach lies in striking a balance between regulatory measures and supporting entrepreneurship and innovation. The government should clarify and draw certain boundaries to provide a stable and predictable environment for businesses to flourish while acknowledging the value that companies and investors bring to the table. By fostering a collaborative relationship between the government and the private sector, India can continue on its path to becoming a formidable world power.
Well, what are your thoughts on the same?