EB5 Investors Magazine Volume 2 Issue 1 | Page 15

India ’ s recent economic woes
The Economist recently declared that “ India ’ s financial system is like a ramshackle engine lovingly maintained by a sect of oil-spattered engineers and wearily tolerated by most people who depend on it .” One such engineer is Raghuram Rajan who , on September 4 , 2013 , took the helm as the 23rd governor of the Reserve Bank of India ( RBI ). His immediate task was to tackle India ’ s worst economic crisis since 1991 . In the second quarter of 2013 , the economy grew a measly 4.4 percent . The country ’ s banking system reeled .
As investors fled the market , Rajan was confronted with two options : a ) raise interest rates in an effort to stabilize the rupee and risk crippling industries ; or b ) follow the free-market approach . Rajan took a calibrated stance by easing restrictions on the banks ’ ability to borrow in dollars , and by backing moves to reform India ’ s structural problems , dodgy fiscal policies , and weak manufacturing base . Had he taken the free-market approach , he would have risked testing the market ’ s patience , and perhaps unleashed further instability through financial speculators .
India has not battled economic woes alone . After signals that the U . S . Federal Reserve ( the Fed ) would shift reins and adopt a tighter monetary policy , several other emerging markets were hit this year by the reversal of foreign investment inflows . The Fed ’ s announcement prompted global investors to shift billions of dollars out of emerging financial markets and erode the value of local currencies . The rupee shed close to 40 percent of its value .
The sell-off by global investors was further compounded by new capital controls introduced in August 2013 . These controls curtailed the annual limits that firms and individuals could transfer out of the country , thus spooking foreign investors who feared the limits might impact their funds . Despite assurances from the Indian authorities that no such restrictions would be placed on foreign investors , the markets continued to slide .
Success in the face of dysfunction
Despite this recent financial trauma , according to the 2013 Credit Suisse Global Wealth Report , India currently boasts 182,000 “ dollar millionaires .” The 2013 Wealth-X and UBS Billionaire Census has determined that , of the existing 2,170 billionaires , 103 hail from India . These ultra-high net worth individuals ( UHNWI ) seem to tolerate India ’ s economic and political dysfunction .
Given the Indian government ’ s tight regulation of its banks and debt markets , India ’ s actual center for investment banking is not Mumbai , but rather Singapore . Some analysts estimate that while half of all rupee trading is offshore , most financial disputes are arbitrated outside of India . Unlike China , which enjoys some control over the economic activity in Hong Kong , India is obviously unable to control similar activity in Dubai or Singapore . The UHNWIs understand these processes , and it seems they have long understood that they can safely park their investment funds in Mauritius and pay taxes at that island ’ s rate of effectively zero .
Political dynamics are an additional source of uncertainty for the Indian public . While India proudly proclaims its status as the world ’ s largest democracy , it also suffers from turmoil within its legislative body . There are effectively only two major national parties : the Indian National Congress ( INC ) and the Bharatiya Janata Party ( BJP ). Both domestic and foreign investors view the BJP as friendlier to business . Wealthy Indians anxiously await the next election results .
What does this mean for EB-5 ?
In spite of the many incentives EB-5 developers have to enter the Indian market , they must first tackle certain obstacles that I see in the process . First , India does not have a sophisticated network of migration agents that have ready access to EB-5 program information . While the EB-5 program is popular in China , very few Indians have heard of it . Second , Indian investors have access to a host of international immigration programs . Third , unlike Chinese investors who are keen on immigrating to the United States , wealthy Indian citizens are typically not anxious to move . Fourth , Indian investors are usually looking for a higher return on their investments than their Chinese counterparts . Fifth , there is currently a $ 75,000 cap on capital outflows . Lastly , EB-5 developers have difficulty tracking the source of funds . Yet , I think none of these hurdles spell doom for the Indian EB-5 market .
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