The Bombay Stock Exchange’s Sensitive Index (Sensex) plunged more than 9% on 17 October after Indian regulators proposed placing controls on foreign investments. But foreign capital comes from many sources—and not all of them represent cause for alarm.
Sovereign Wealth Funds (SWFs), which manage and invest the national savings of different countries and account for $2.5 trillion (approx. Rs98.25 trillion)in assets, are rapidly moving to the forefront of international finance.
According to Vinay B. Nair, a senior fellow at the Wharton Financial Institutions Center and a visiting professor at the Indian School of Business, such funds should be allowed to invest and thrive in India—though investors and government officials should be careful abouttheir motives.
While investors have reasons to welcome the liquidity that such funds bring, Nair points out that many governments are concerned these investments could be used for strategic purposes. But curbing capital inflows is unlikely to be helpful, he argues. “Such regulations are often blunt instruments,” he writes in an India Knowledge@Wharton op-ed, noting that capital is a necessary ingredient for India’s economic growth.
Moreover, those who advocate restrictions are overlooking an important benefit of SWFs, he adds: “These funds sometimes open the doors to reciprocal investment opportunities.”
The presence of SWFs deserves “attention, not alarm. It is important to pay attention to the nature of the SWF.… Funds of countries where the investment process is far removed from the politics and those based in democratic regimes are relatively safe options.”
Until best practices for SWFs are determined by the International Monetary Fund or the World Bank, Nair writes, Norway’s SWF “remains the model” for its diversification, excellent transparency and its adherence to the UN principles of responsible investment. “Stopping foreign inflows into Indian markets is undesirable,” he says, “but getting to know the identity of foreign capital through better disclosure is a good idea.”
Online log critical to country’s entrepreneurship
Entrepreneurs love to grumble about the roadblocks and delays created by bureaucrats. Government officials, they say, are slow, bumbling and concerned only about sticking to the rules and clocking out at 4.55pm. But in a study of global entrepreneurship, Raffi Amit and Mauro Guillen, both Wharton management professors, have found that a simple, and smart, bureaucratic initiative mattered critically in determining a country’s level of entrepreneurship.
Specifically, countries that created electronic business registries saw far higher levels of new business formation than those with traditional paper ones. Even the announcement that a country planned to establish an online log led to a jump in business registrations.