London is the Masala Bond capital of the world and the City is a market that understands India
From British High Commission in Mumbai and Director General of Economics, Trade, and Investment for India
In the words of the IMF, India is the “bright spot” in the global economy: the fastest growing G20 country, with a reforming Prime Minister who is determined that India will fulfill its potential. But what are the raw ingredients needed for this growth and does India have them?
Writing in 1776, in his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith identified three basic factors of production: land, labour, and capital. Some 240 years later, these three factors are still central elements to any growth story. Bringing in the necessary land reforms and technology to exploit India’s natural resources is firmly on Prime Minister Narendra Modi’s radar, likewise the focus on Skills India to improve labour productivity and manufacturing. The UK, of course, is working extensively with India on both these agendas but it is the third area, capital, that is essential to really propel growth. Where is the money going to come from to invest in technology, skills, and infrastructure?
A bond that holds
The World Bank estimates that by the end of the decade India’s infrastructure alone will need $1.7 trillion of capital investment. India, arguably no country, would be able to finance this level of investment purely on its own.
The UK’s response has been swift, significant and is already making a difference to this challenge. India Prime Minister Modi came to the UK last year looking not just for British investors but looking to London to act as a funnel for the world’s capital.
In his speech at Wembley, he said, “We need development. That’s why after James Bond and Brooke Bond, we go to Rupee Bond!” Never before, and possibly never again, will over 50,000 people so loudly cheer the announcement of a bond issuance!
Since then the UK, working with Indian partners, has delivered. Two months ago Axis Bank launched India’s first internationally-listed certified green bond on the London Stock Exchange (LSE) and raised $500 million. It was 2.2 times oversubscribed and cost just 1.6 per cent above US Treasuries and was 0.15 per cent cheaper than targeted. Last month, HDFC announced the world’s first ever Masala Bond by an Indian entity; it was also listed on the London Stock Exchange. It was 4.3 times oversubscribed, 5bps cheaper than HDFC’s onshore borrowing rate and they were able to issue ?30 billion ($450 million), 50 per cent more debt than they were aiming for. And just last week, the world’s first ever Masala Bond by an Indian PSU was also listed on the London Stock Exchange by the National Thermal Power Corporation (NTPC) – a ?20-billion ($300 million) Green Masala Bond to be used to help generate 175GW of renewable energy by 2022. This is the size, scale, and pace of investment that India needs to build on to fulfill its potential.
The last two of these issuances came after the UK’s referendum on EU membership and shows quite clearly that irrespective of EU membership, London is still a world leading financial market and is in pole position to funnel the world’s capital to invest in India.
Having adopted the curry as its favourite national dish, I have no doubt it will adopt the Masala Bond as one of its favourite asset classes — with its string of “world firsts” it is already the world’s Masala Bond capital!
The City is a market that really understands India, not least because of the prevalence of the Indian diaspora working in it. But it understands the risks and the returns of investing in India and can pull in investors from the Far East just as easily as it can the asset managers of North America, and the wealth funds of West Asia. With sluggish growth across all major countries, making India an even brighter spot in the global economy is good news for everyone, not least for the one-sixth of the world’s humanity that lives here. Make in India, Finance in the UK is no longer a catchy mantra — it has become a reality!