This was one of the issues at the Inaugural Lecture of the Kings’ College, London India Institute headed by the accomplished Sunil Khilani. To understand this issue to understand the Indian corporate and an economic saviour for Britain.
Indian companies invest in the UK because they have no shortage of cheap capital (for the first time in decades) and talented management with global experience. They have in British company’s assets something they can acquire cheaply. You can buy a British company on the FTSE 100 for ten times its annual profits. That is cheaper than virtually any time in the past 30years. In these ‘distressed’ foreign assets they have companies that are not only cheap, but also with strong brands – that intangible asset you can acquire and sweat and exploit and with which you can create wealth. And finally you have a domestic Indian economy wanting these brands (eg Jaguars made in Britain with British cache) or through acquiring a British company – access and free movement into the EU – a $14tr economy – 10 times the size of India.
Indian companies – especially family owned ones – don’t risk acquisitions oversees for ego gratification. Because it is their own money. Bankers may – with other people’s money – but Indian companies tend to run their own family name and money.
Neither do they invest in the UK to hedge the risk of Indian growth diminishing – if business were that good at diversification and planning – we would not have economic cycles – and the best hedge is diversification – so you would do it domestically first not internationally – and not when recessions tend to be global – and if Indian growth drops – you can bet Western growth would be even worse in such a world.
So how do we get out of this mess and what is the role of India? All three major UK political parties have had their party conferences and all three have differing views. Should we increase our public debt to pay for public projects to give people jobs who will then use the money to buy things they don’t need? Or do we cut the deficit and risk increasing even greater unemployment and lower growth?
My thoughts are clear and were expressed on the BBC and they are right. First, unemployment is under 10%. That is still not good if you are unemployed – but it helps to know the facts before you become too scared to even leave the house in case the sky falls on your head. 10% is not excessively economically or historically high. Second, chasing growth by creating more debt, than the growth the debt will create is as stupid as trying to remove water from the Titanic with a colander.
Third, even with no growth, the EU would still produce $14trillion of good and services. So we should in this environment stop trying to burden ourselves with more debt for 1% growth.
Fourth, the problem is not interest rates, or lack of quantative easing. Clearly. Obviously. The low level of interest rates can’t go lower and the economy is in a state. The problem is one of certainty and tax. Look, who has money to spend? Not governments and not consumers. So clearly the government increasing debt it can’t afford to make consumers spend when they are indebted does not make sense. Instead the focus should be on companies – who do have money. We know they have money because of their earnings. Reduce corporate tax rates (if you are going to have budget deficit – have it because money went to the efficient parts of the economy – those making a return – than those using it to pay down credit card bills). Further – provide certainty – by stating 2 year economic tax rates. This allows business investment decisions to be made. Stop scaring business by telling us how ineffective Europeans are at making collective decisions – we know.
Incidentally the prestigious India Institute is set to be a thought leader in understanding India and they are offering an MA in Modern India. Well worth visiting their lectures: email@example.com