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India: energy transition and a global tech battle amid pandemic politics | Analyst Picks| RiskMap 2021

India

India: energy transition and a global tech battle amid pandemic politics 

Pratyush Rao | Director

Doubts have been raised about the future of India’s growth in the wake of the pandemic, but in 2021 we expect two areas to be critical for foreign businesses in India. 

India will remain a battleground for global technology and telecom companies irrespective of which side of the US-China technological cold war they are on. Geopolitical considerations will continue to inform moves aimed at restricting Chinese participation in India’s digital economy, but US companies won’t get a smooth ride either. India’s push for self-reliance, desire to create local national champions and growing recognition of data as a strategic asset will drive stiffer and less predictable regulatory enforcement, including areas like data localisation and anti-trust.  

Secondly, we expect the growing importance of climate change in investment decisions (See Top 5 Risks, Go Green or Go Bust) to benefit India: the country has seen a dramatic drop in financing for coal power projects amidst its transition to a low-carbon economy. Together, this will continue the demand for more sustainable investments particularly in, but not limited to, India’s renewables sector.  

In the absence of serious pushback from the judiciary or opposition in parliament, we expect a powerful executive to shape the national political narrative, further burnishing Prime Minister Narendra Modi’s cult of personality in 2021. The government will use the pandemic to adopt a more interventionist role - setting the terms of engagement for companies across sectors, increasing bureaucratic friction, heightening compliance risks, and raising the potential for arbitrary enforcement. Investors are advised to keep informed about sectors and states they operate in, track regulations that may impact business, and choose local partners carefully.  

We expect Modi to leverage his Hindu nationalist agenda and promises around welfare delivery – notably the swift roll-out of COVID-19 vaccines – to position his Bharatiya Janata Party (BJP) as a serious local contender in state-level electoral contests. However, foreign investors who expect this period of political dominance to translate into structural economic readjustments will be disappointed. Modi’s approach towards reforms will remain incremental with the government prioritising India’s domestic competitiveness and bolstering credit growth to sectors worst hit by the pandemic.  This will contribute to efforts to raise revenue by reviving the stalled SOE disinvestment programme. Modi will also seek to provide sizeable production-linked fiscal incentives to specific sectors like automobiles, electronics, pharmaceuticals, solar panels, telecoms and network products, creating opportunities for foreign companies looking to establish supply chains in India. 

 

India: energy transition and a global tech battle amid pandemic politics

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