Invest in India to exit nations that don’t share our values, says US Ambassador #IndiaFinance

New Delhi: India is the place to invest for those looking to diversify or get out of countries that don’t share the values of the United States, Eric Garcetti, the US Ambassador to India, said, as he hailed the south Asian nation’s democracy and its rapidly growing economy.

He was replying to a question on whether US-based businesses were looking at pulling out of China, and diverting investments to India.

Speaking on the sidelines of an event hosted by the Milken Institute in collaboration with the United States Mission in India on Wednesday, Garcetti pointed out why long-term investors in the US are seeking investment opportunities in India.

“It is a democracy with the fastest-growing economy, brilliant human capital and a great relationship with the United States: If I was an investor, that makes a very clear case,” he added.

During 2018-2022, US-based public pension funds and university endowments had invested nearly $146 billion in Chinese entities, according to a January 2024 report by Future Union, a non-profit group led by venture capitalist Andrew King.

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At the same time, at least 14 pension funds with investments in Chinese stocks have been reducing their stakes since 2020, according to Bloomberg reports. The California Public Employees’ Retirement System and New York State Common Retirement Fund are among the biggest pension investors that cut their exposure to China for a third straight year.

Pension funds in the US have been paring exposure to China as US president Joe Biden’s administration continues to restrict investment in Chinese entities. The White House issued an executive order on 9 August 2023, creating an Outbound Investment Program, to reduce the US funding to critical emerging technologies in China.

In 2023, about 40% of the biggest global funds selected India as the most attractive market. India beat all emerging market countries with its National Investment and Infrastructure Fund (NIIF) and Gati Shakti Initiative, according to the Official Monetary and Financial Institutions Forum (OMFIF), a London-based think-tank that surveyed the 50 largest public pension funds and 50 biggest sovereign funds in the world.

On the contrary, less than a quarter chose China (23%), Brazil (23%) or Mexico (15%), while none selected Indonesia, South Africa or other emerging markets.

India’s improved governance and information sharing appealed to global investors, said the OMFIF report. No surveyed fund, however, had a positive outlook on China or expected relatively higher returns from the market, with 73% citing regulation and geopolitics as the main deterrents. India became the top choice among all emerging countries.

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Garcetti’s comments came a week after the US Consulate General Mike Hankey announced that the US Mission to India is working with the Indian government and NIIF to bring a delegation of top five public pension funds and non-profit groups representing all 50 states of the US to scour the investment space in India.

The US embassy, all the consulates and the US department of treasury, are jointly working on this mission to meet Indian political leaders and businesses.

“India’s current account deficit has altered for the better over the last 10 years,” said Sanjiv Aggarwal, the chief executive and managing director of NIIF. “The major risk that international investors used to see, which is that of currency depreciation, is not significant anymore.”

Analysts feel India offers an array of opportunities for such funds looking for stable returns.

“As pension funds seek to secure long-term, stable returns for retirees, India offers an exciting array of opportunities,” said Amit Kumar Singh, professor, department of commerce and business, Delhi School of Economics. “The Indian government’s policies around the production-linked incentive (PLI) scheme, especially focused around electric vehicles (EVs) and renewable energy, are a major investment prospect.”

The pension funds are likely to face many challenges in the Indian market such currency fluctuation risks, bureaucratic delays and land acquisition delays, etc, which may be a hurdle to investments, Singh said. Additionally, cultural and operational differences with local firms can also complicate and increase competition for high-quality investment opportunities.

“To successfully capitalize on India’s growth potential, US pension funds must thoroughly understand and strategically manage the challenges,” he said.

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At the event, Garcetti also spoke about avenues for US-India partnership. The ambassador encouraged Milken Institute, the Los Angeles-based think-tank, to set up an office in India and establish a more permanent presence.

The invite-only event was attended by executives from several global investment firms and associations including Teachers Insurance and Annuity Association of America (TIAA), Cambridge Associates and the Temasek group.

The Milken event was held amid the US pension roadshow, “Building Financial Futures,” an effort by the US Mission in India to promote long-term US institutional investment into India.

A US delegation consisting of the top five American pension funds are visiting New Delhi, Benguluru and Mumbai to explore investment opportunities in the country. The representatives will meet experts from various sectors, including technology, banking and financial sector, government officials and private equity. The delegation together manages assets of over $1.8 trillion.

Through the roadshow, the US-based investors are looking for opportunities to diversify their supply chains, Garcetti said.

The funds are looking to invest in infrastructure, renewable energy and decarbonisation, manufacturing, healthcare and pharmaceuticals, ports and aviation, among others.

US institutional investors have already invested over $50 billion in India. The US government, through its Development Finance Corporation, has invested around $4 billion so far.