Time for a change

Narendra Modi's election victory has engendered plenty of optimism among India's business community. But can he deliver on his promises?

The Indian private equity market has long been in need of a pick-me-up. The country’s well-publicised economic travails of the last few years – at a time when the local industry was already struggling to recover from the excesses of the boom years – have left many investors disillusioned with a country that once seemed so rich in potential.

So it’s no wonder that this week’s news of Narendra Modi and the BJP’s emphatic victory in the general election has generated such positivity among local practitioners.

Modi remains a divisive figure. Politics is not our domain; but while the new prime minister has obviously succeeded in persuading a majority of India’s vast electorate that he’s the right man to lead the country, it’s clear that he still arouses a great deal of hostility and suspicion in certain quarters, both at home and abroad (as was evident from some of the international media coverage in the run-up to the election).

Nonetheless, the important thing, at least as far as the business community is concerned, is that Modi has been elected with a clear mandate for economic reform. Growth was the dominant issue in this election; Modi’s entire campaign was predicated on growing the economy and shrinking the government. And the economic success of Gujarat under his ministership (notwithstanding its failures in other areas, which are a topic for a different article) hints at what could be achieved, albeit on a smaller and less complex scale.

No wonder, then, that India’s private equity leaders have been making such positive noises in their conversations with us this week. As ICICI Venture’s CEO Vishakha Mulye put it: “Given the clear mandate – and the track record – of the new PM, I expect swifter implementation of pro-growth policies, which would augur well for our industry.”

The Indian stock market has also responded positively: the Sensex is already up 1,000 points since the result was announced, and there’s talk that it could top 40,000 within the next year or so. This would bode extremely well for private equity exit activity, the lack of which has been one of the industry’s main problems in the last few years.

So optimism abounds, at least in financial circles, and that can only help the investment climate. Of course, India’s problems run deeper than psychology – and it remains to be seen how successfully Modi will be able to unravel India’s famously byzantine regulatory framework in practice. But at the very least, he seems likely to shake things up.

India’s rich potential – particularly the youth of its population and its entrepreneurial flair – never went away. And the local industry today is a very different beast: the GPs that have survived are battle-scarred, more sensibly capitalised and better-equipped to generate alpha through operational improvement. So if the new leadership can just clear away some of the obstacles to growth and unleash some of this huge potential, there are plenty of reasons for investors to believe that the next generation of India fund vintages can finally start to deliver on their long-held promise.

But of course, much depends on whether Modi can prove himself to be the kind of leader he has promised to be – and start to demonstrate the kind of statesmanship that will allow him to bring the whole country with him. Over to you, Prime Minister.


P.S. The June issue of PEI includes a special supplement on India, featuring commentary from and interviews with some of the local industry’s leading lights – including reaction to Modi’s win.