BackRegulatory effort needed to ensure trust in markets: Michael Klowden
The president and CEO of the Washington DC-based Milken Institute on the current business and political climate in Asia, China and India, as viewed by US investors and stakeholders
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Singapore: Michael Klowden is president and chief executive officer of the Washington DC-based Milken Institute, set up by former financier Michael Milken.
During Klowden’s tenure, the Milken Institute’s annual Global Conference has become one of the world’s premier business, finance and policy gatherings.
He describes the Milken Institute as a “fiscally conservative, socially liberal" nonpartisan think tank whose mission is to widen access to capital, create jobs and improve health.
Since joining the institute in 2001, Klowden has overseen the launch of major research initiatives at the institute, from tracking the development of China’s nascent capital markets to estimating the cost of preventable chronic disease to the US economy.
In the past, Klowden has worked as president of the Jefferies Group Inc., a global investment bank and institutional securities firm; here, he was responsible for directing Jefferies’ transition from being primarily a trading firm to becoming a full-service investment bank. He has also been a senior partner at Morgan, Lewis and Bockius, an international law firm.
Klowden sat down with MintAsia for an interview on the sidelines of the second Milken Asia Summit, held in Singapore, on 17-18 September, to discuss his perspective on the current business and political climate in Asia, China and India, as viewed by US investors and stakeholders.
The Asia Summit gathered 300 high-profile executives, influential investors, heads of sovereign wealth funds and philanthropists from around the world.
Edited excerpts from an interview:
How is the current administration of Prime Minister Narendra Modi seen in the business and financial community in America in terms of speed of reform and ease of doing business in India?
US investors and the business community are hopeful, rather than optimistic, about the Indian economy. There is a feeling of real intentions on part of the Modi government to make significant changes for reform and creating a more business-friendly environment in the country. Certainly, having someone like (Reserve Bank of India governor) Raghuram Rajan gives a lot of confidence to this community. But there is a recognition that India is a very large ship and it will take time to turn around. The key is how long will the investors wait for before they start to get impatient and look elsewhere to invest capital.
Is the global capital flow to India under real threat if reforms are not accelerated in the coming year?
India’s problem is not a lack of capital inflow, as most investors would like to invest in India now. But they are very much in a wait-and-watch mode. Currently, the investor community view is that the conditions have clearly not been met yet in the first year of the Modi government in terms of addressing red tape and corruption adequately. This needs to be addressed soon to ensure continued interest in India.
What is the biggest hurdle in your view for India to attract FDI (foreign direct investment) today?
Corporate governance. It is seen to still be quite weak in India. This must be fixed as it makes investors very nervous. There needs to be a lot more regulatory effort put to ensure transparency and trust in the Indian capital market.
In USA, the capital markets work really well because the legal underpinnings around it are really strong. The bankruptcy code, Chapter 11, and other laws it enforces stringently are incredibly important in boosting investor confidence. This is still not the case in India, and is in many ways the biggest stumbling block for India’s growth.
What is your view of the Chinese crisis? There is a feeling in some quarters in India that China’s loss can be India’s gain. Do you agree?
China has a huge impact on the global economy; and to the extent that India has become a significant player in it, it will be impacted, too.
Hence, it is not good for the Indian economy to have a prolonged China crisis. What has happened in China is an inevitable blip. You can only defy the laws of gravity for so long. Real damage has been done in the way the government has handled the crisis and intervened. But investors see this as a temporary short-term setback. There is confidence that China will recover and have a soft landing.
What fundamental challenges is the investor community looking for the Modi government to address in the near future to boost market confidence in India?
First, investors would like to see India boost its manufacturing competitiveness to ensure the “Make in India" campaign translates into reality in the near future.
Second, the Prime Minister also needs to have a clear strategy to create millions of jobs required to ensure its young and growing population become a demographic dividend, rather than a disaster. Hence, labour market reform is crucial.
Finally, the Indian government needs to fix its creaky infrastructure, even as it assuages protectionist lobbies and battle entrenched corruption and weak governance.
These are the three big signals in my view that global investors need to see progress in before major investments start flowing into India.
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