Why even react to George Soros’s India riling?

India should be ready to answer tough questions: some might be awkward, some embarrassing, and some might not have answers

Speaking at the Munich Security Conference on February 16, billionaire investor George Soros commented on a topic of Indian significance — the Hindenburg Research report critical of the Adani Group — and added that it “…will weaken Modi’s stranglehold on India’s federal government and open the door to push for much-needed institutional reforms. I may be naïve, but I expect a democratic revival in India”.

If Soros, only as a large global investor, had commented on corporate or market governance, one would have acted on his comments. Questions posed by the Hindenburg report have raised eyebrows over corporate governance, and that of the independence and the supervisory intent of the regulators. As a nation that seeks to deepen its global investor engagement, we should be ready for answering these questions; some of them might be awkward, some embarrassing, and some might not have answers, at least for now. One can only guess the repercussions if a large domestic investor had asked the same questions about corporate governance in the same issue.

Why Bother

Surprisingly, instead of ignoring it, many have taken offence to Soros comments. One understands the political furore over this, as optics is part of the process. However, the fact is that India does not need to defend the functioning of its democracy or does it need external validation, or the need to react to every comment.

For all the criticism that Soros funds various non-State players to push his ideology, here is the point: Act on those which are illegal, or anti-State. Use those strategically where it matters for India as a sovereign, and don’t leverage it for positioning. Nationalist war-cries don’t cut ice, as we saw few weeks ago too. Yet as a secure democracy, we must allow for diverse views and differences in opinions, without hurting the messenger. That’s what our traditional dharma has been.

It's Par For The Course

Can a Soros or equivalent impact sovereign economies or market sentiments? Will investors use short-selling against markets and nations? In the past, investors have bet against the system, and a few have also succeeded. But then, we should not worry about any negative impact on our democracy, if we are true to the values articulated in our Constitution. From the perspective of regulatory lens, short-selling is not illegal, and, hence, moral-upstanding claims around short-selling won’t show us in good light.

Is Soros betting against India? Going by his past record, any economic arbitrage he has had, political implications have come along. As a hedge fund manager, he did break a few banks. But then, in a capitalist way, it is par for the course. With his betting against sovereign currencies and winning those large bets against the governments and central banks, he won’t be easily liked by the governments. However, unlike the currencies he shorted successfully (baht and ringgit), the Indian Rupee cannot be shorted easily. Since the rupee is not fully convertible, it would mean that beyond a certain transaction limit, approvals would be needed for the rupee-forex exchange.

Believe In India

Is India’s governance standards under assessment? As a large market, we will always be under the assessment of global investors. Any lesser standards at our regulatory and legal institutions will affect global investors’ view of Indian markets.

Is India facing a backlash from some of the developed nations? Probably, yes. The Indian economy has been growing considerably, and the growth rate has put a dampener even on Western economies. Geopolitical imperatives of a few nations might even be to hurt India. As India grows from strength to strength we need to be prepared for more such attacks.

Are other countries using voices that matter to politically, or diplomatically, or economically weaken India’s position? It is a possibility given the dark allies through which some nations conduct their statecraft. Any sovereign country nation must be anticipate and blunt such attacks, both vocal and those through subterfuge.

We can afford to ignore individuals, but not their ideas or ideals. It is good that India at large has put these comments behind them and have moved ahead. India has the political and policy robustness to overcome such negative actions. Remember, successful shorters use market intelligence, are persistent, and will use any structural flaws to their advantage. The good news is that not all short-sellers profit.

(Srinath Sridharan is a corporate adviser and author. Twitter: @ssmumbai.)

Disclaimer: The views expressed are the author's own. They do not necessarily reflect the views of DH.