Markets with Bertie: All roads lead to deregulation

At a recent investor conference, Bertie met one of India’s most celebrated entrepreneurs. During the conversation, he asked Bertie a rhetorical question, “You know what an entrepreneur loves more than subsidies and interest rate cuts?” Bertie waited for him to answer. “Deregulation,” he said emphatically. “I don’t want anything else. Simplify the regulations and keep them stable. That’s all any businessman needs.” Bertie nodded.

The distinguished gentleman then highlighted the fact that he was seeing deregulation as a common thread within the policy agendas all across the globe. Bertie got a feeling that he was in for a class. “Take Trump’s 10-for-1” the gent started referring to the President’s diktat to all American regulatory agencies that for every new rule or regulation they promulgate, at least ten existing rules and regulations need to be repealed. “It’s the most important change that the new president is trying to bring in. Game changer it can be!” he said, rubbing his hands.

“Same thing in Europe”. The businessman had made a swift leap across the pond. “Read the Draghi report?” he asked. Bertie hadn’t, but he made a mental note of asking ChatGPT to make a summary. The report, he was told, highlighted that the EU had passed 13,000 pieces of regulation since 2019, almost four times more than the US. It concluded that one of the reasons why the EU lacks dynamism, especially in the technology sector, was this tendency of centralized over-regulation. The gentleman told Bertie that the president of the European Commission had already called for at least a 25% reduction in regulatory burden for all European businesses and 35% for smaller ones.

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He made another leap and now landed in India. “Read the latest economic survey?” This was seeming more like a dreaded viva to Bertie now as he made another mental note to use the services of ChatGPT. “The chief economic adviser is clearly asking the government to get out of the way. So, refreshing to see that!” The entrepreneur seemed genuinely elated, but he was not done.

“And you know all this happening at the same time is no coincidence.” Not wanting to break the soliloquy, Bertie just dropped a thoughtful “Hmmm!”. The man continued. “The biggest issue in the US is fiscal deficit; in Europe, it is growth, and in India, it is job creation. And all three problems have a common answer. It’s deregulation!” He wore the triumphant look of someone who has just solved all the problems in the world. Bertie knows that there might be a degree of over-simplification and exaggeration in this discourse, but that did not prevent some of the enthusiasm from rubbing off. He now looks forward (again) to a deregulation-led global productivity boom.

Trillion-dollar questions

Bertie is a dyed-in-the-wool Mumbai boy, which is why most foreign investors in India, think of him as a local. He also seems to know all the eating joints in the city that prioritize food over hype. So, every time the goras fly in during investor conference season, Bertie’s calendar gets filled up to provide local market colour at restaurants and bars that aren’t called Bastian or Aer. Bertie was thus reminiscing about the old times with an Indophile FII over some Bombay duck at Pali Bhavan when the latter invited him for an informal dinner the next day with all the visiting foreign investors. The dinner, he was told, would also be attended by representatives from the government who wanted to understand what prominent FIIs were thinking.

Bertie thought it was a good idea to catch up with all his overseas friends and save himself the extra calories. The dinner started with an India investment pitch by the government officials, and once the PowerPoint deck was fired up, any semblance of informality disappeared. The goras straightened their backs and fixed their ties. While the bulk of the discussion was around the relentless FII selling in public markets, what caught Bertie’s eye was the weak net foreign direct investment (FDI) number. The presenting officials displayed some more data to provide context. Globalization, they argued, was in retreat, and that included not just goods but also capital, so comparing historical FDI ratios with the present day was not correct. The other assertion they made was about the gap between Gross and Net FDI, wherein the net inflow was weak because foreign investors who had made money in the Indian markets were now booking profits and sending back those gains to the home shores. The Gross FDI number, they showed, remained reasonably intact.

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This might be factually correct, but Bertie left the dinner wondering why the providers of foreign direct investments who had generated good returns in India were now feeling compelled to take the money out rather than re-deploy it in the country. Even before the trillion-dollar question of why FIIs are selling was answered, here was another one of similar size. Bertie is now waiting for the next dinner invitation to get some answers.

Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.