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Partners Column -July, 2016

July 16, 2016
Dear Friends, As I pen  this column today morning – the Economic Times front page has interview of our prime minister on the completion of 2 years of his government’s term and likely reshuffle of his cabinet. I want to quote this from his interview –My aim is to reform to transform… at the end of my term, success means people should experience change”.   When you listen to him you are energized and lot more passionate about your country and your hope for things to improve increases manifold.  When his government took over, things were in a very bad shape due to global and local factors and expectations ran very high. If you look back and see how much the scenario has changed –perception about India and its prospects have definitely changed and as a country we have gained more visibility, acceptability and a positive attraction  for investment. Currently, everything may not be looking great. It looks like government is working on structural changes (reforming banking sector, giving life to power distribution companies, easing tax compliance, liberalization of FDI policy etc.,) which could take longer time than anticipated. With the likely prospect  of good monsoon and debottlenecking of a number  of issues, I  feel we should see these  changes reflecting in GDP growth, per capita income, investment flows etc., Another major challenge is creating enough jobs for  our youth, I think  much needs to be done in this area; while schemes like Mudra have  been very  successful (disbursed INR 1.25 lakh crore to 33 million borrowers)  in giving collateral free loans to small businesses. 2016 marks the silver jubilee anniversary of the Indian economic liberalization era which was initiated  in 1991 under the leadership of the then prime minister P.V. Narasimha Rao and finance minister  Dr Manmohan Singh. Few path breaking decisions that were undertaken include devaluation of rupee by 18%, new industrial policy which scrapped license raj, liberalization of FDI etc., We must give credit to both the legends who dared  to take those path breaking  decisions; which  put us on the journey of economic liberalization  and we started to see the benefits accruing from it. It is believed that economic liberalistion contributed to  rise in inequality. Credit Suisse had estimated in their 2014 report, that the richest one percent of India’s population controls about 53 percent of the country’s wealth. Even central bank governor Raghuram Rajan has criticised the rise in inequality – an issue that has gained prominence not only in India, but also across the world. The global events such as Brexit and US presidential elections have attracted huge international  and local  attention. The British voted to exit from EU. The statements from Trump, presidential candidate in  US elections points towards protectionism, restrictive trade practices etc. The outcome of Brexit and statements by Trump are of great concern  in the era of globalization of trade and investments. The much awaited National Company Law Tribunal (NCLT) and NCALT  have been constituted effective from 1 June 2016 by abolishing the Company Law Board. While the notification is in place, these benches are yet to function and hear the matters; in the interim  it is causing huge inconvenience to parties who have  pending matters or want  to initiate new cases.  The success of NCLT would depend on – use of technology for efficient disposal of matters, the speed of disposal and transparent recruitment of members to these benches. The government has been working on revisiting tax treaties with various countries such as Mauritius, Singapore, Cyprus etc., The much criticised treaty with Mauritius has been amended by god-fathering investment made upto 1 April 2017 as tax free and has been very well received by all the stakeholders. The Indian IPO market saw few issues hitting the market and generating good returns to the investors though the number of issues and amount of money that needs to be raised have to go up significantly to increase the capital formation and investment activity. The investment activity by Angel, VC and PE funds came down significantly in the first half of 2016, the number of deals went down to 643 against 737 in corresponding period of 2015 and the amount raised was at $ 5.8 billion as against $ 10.8 billion. The valuations have become more realistic and focus is on quality of earnings, execution and cash flow unlike mad rush to acquire clients and increase topline disregarding profitability and cash flow. It’s a good sign for the industry and benefits the companies who stay focused and survive. The lifecycle of sectors is also moving fast and getting consolidated rapidly The new sector i.e. Artificial Intelligence (AI), which gained momentum in the West is seeing traction in India and there are couple of investments already in this space. The AI application across various businesses is huge and can result in huge cost saving and automation may result in loss of  jobs. Lets hope we continue to grow at  GDP 7%+  in immediate term and hit double-digit all-inclusive growth very soon. With best regards Raghu Babu G Partner July 2016


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