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Notes from Davos: An Indian autumn, springtime in Japan and a walk down REITs Street

Davos: As I stand back and reflect on the general atmosphere here at Davos, I realize I'm receiving a range of mixed signals from the World Economic Forum. On the one hand, the Indian delegates
India TV News Desk January 23, 2014 12:47 IST
India TV News Desk
Davos: As I stand back and reflect on the general atmosphere here at Davos, I realize I'm receiving a range of mixed signals from the World Economic Forum. On the one hand, the Indian delegates represent the third-largest contingent among all attending countries at WEF 2014. On the other hand, I detect a tinge of restraint among them.

Conflicting signs

This nuance came across rather markedly during the session ‘An Insight, An Idea' with India's finance minister P. Chidambaram. He spoke on various topics such as the country's institutions, its economy and the unique aspects of policy formulation in the world's largest democracy. The weak attendance of this session – it was less than half full – seemed to indicate a lack of enthusiasm from the Indian contingent. This makes me thoughtful. Are we really that skeptical about the forces that guide our economy?

It is true that we have a great cross-section of leaders from India in attendance, but it is equally true that some of the most prominent personalities of Indian business are conspicuously absent. Considering the importance of this forum, it would have felt right to see some of the more notable heavyweights of the Indian business community in attendance.

Are they merely caught up in the steering of their businesses – or do they perceive that this is perhaps not the right phase of the Indian economy to engage in serious networking? It is hard to believe that the latter is the case, since WEF 2014 is visibly and tangibly replete with excellent opportunities for business growth.

From various discussions with the international business community here, I pick up a subdued sentiment towards India. The rationale seems to be based on certain conclusions:

* India has been consistently over-promising and under-delivering

* The country's growth has not been as per expectations

* In terms of investment potential, much depends on what the new government will do. Since it would take 6-8 months to start delivering, it is prudent to wait and watch. Perhaps next year will look more promising

Sobering thoughts! Nevertheless, the overall mood among attending Indians is decidedly upbeat. I agree completely with their belief that the worst is over, and that the country is on a roll once more. The current government, I hear, has run out of steam – but we must nevertheless not lose sight of what it has managed to achieve even as we discuss its failures.

In stark contrast, the Japanese contingent at the World Economic Forum is extremely upbeat about its country. They are especially vocal about how well the policies under Abenomics have worked in Japan's favour and how the subsidies and breaks that have been rolled have helped the country to regain a growth trajectory. Japan now intends to focus on increasing consumption and adding more subsidies to add further impetus to this growth.

At this point, the difference in the temperaments of the Indian and Japanese delegates is a little hard to ignore. But since this is just second day of WEF 2014, it may be best to wait and see what the few four days hold in store…

REITs in the offing?

For every stakeholder in the Indian real estate industry, the less-than-exuberant scenario that currently prevails with regards to structured funding into the sector is an area of deep concern. The World Economic Forum is a good opportunity to obtain answers; I was fortunate enough to engage Finance Minister P. Chidambaram in a private conversation. I was particularly interested in his views on REITs (Real Estate Investment Trusts) in India.

We were both pressed for time, but he was refreshingly candid, forthcoming and obviously very informed. The conversation was very thought-provoking, especially since he was happy to discuss such matters of great pertinence to Indian real estate. I came away with a fresh perspective on the nuances of government administration, and also with mixed feelings about the prospects for REITs in India.

REITs are an important ingredient of a more convincing revival for Indian real estate. While this progressive model of funding has been waiting in the wings for a long time, SEBI has in fact been aiming to see REITs launched in India in the 2104 budget. REITS will bring in an additional funding mechanism into the cash-starved real estate sector and also provide an additional means for investors to invest via a structured channel, similar to more mature markets such as Australia, UK and Singapore. Yet, it has not yet been adopted in India - a market that is obviously in great need for such a mechanism.  

My mixed feelings stem from the fact that there have been many false signals of hope on this front in the past. However, the tax structures that will need to be placed if REITs are to be successfully launched in India are still awaiting necessary approvals. As such, their launch in this year's budget is somewhat unlikely, given that it just might be an interim one.

Can we look at 2015 as a possible launch year? The prospects for REITs becoming a reality under the new government's budget for 2015 are actually quite good. In case there is no scope for REITs, I get the impression that SEBI will seriously evaluate alternate real estate investment products. One way or the other, there is no lack of awareness about real estate being an important economic driver in India – and this awareness will doubtlessly crystallize into fuel for the engine.

(Anuj Puri is chairman and country head at Jones Lang LaSalle India)