Mukul G Asher
India should insist on reciprocity in investment access, and in other economic opportunities in the countries of origin of the SWFs, while participating in shaping an international code of conduct for them. The aim should be to retain policy autonomy and flexibility so as not to undermine India’s medium-term technological choices and growth options.
India needs to substantially enhance its regulatory and monitoring capacity for not just approving the foreign direct and portfolio investments, but also their behaviour over time. India should consider developing a database of foreign investments by type of financial institutions, including SWFs.
The short term tactical behaviour of the SWFs need to be evaluated differently than potential (or probable) medium long term behaviour. Some SWFs may project themselves as essentially portfolio investors, rather than tacking controlling interests. But even a significant portfolio investment could potentially impact who eventually controls the company. Often, an implied subtle step, not necessarily direct, to disrupt financial and capital markets of the target country, may be sufficient to demonstrate financial power of the SWFs.
As the size of the Indian economy increases from the current US$ 1.2 trillion, the market for corporate control will also become more contestable. Better corporate governance is therefore no longer a luxury but a necessity if the existing owners want to maintain control. India must also permit its entrepreneurs, state enterprises, and its financial institutions much greater latitude in pursuing investments abroad, and in engaging in strategic alliances.