Vidya Ram

‘The Norwegian sovereign wealth fund could be a natural investor in India’s infrastructure’

Vidya Ram | Updated on September 21, 2014 Published on September 21, 2014

Sony Kapoor, MD of think tank Re-Define

Sony Kapoor, MD of think tank Re-Define, makes a case for closer India-EU relations



As a young student, growing up in New Delhi, Sony Kapoor’s ambition had been to one day head the World Bank. Several decades on, and after a diverse career ranging from time trading derivatives for Lehman Brothers, advisory work for the World Bank, European Commission and the UK Treasury to co-founding the International Tax Justice Network, committed to stamping out tax havens and avoidance, he now heads Re-Define, a prominent European think tank and consultancy that advises governments on financial and economic strategy. Set up in 2008, in the early years it was thoroughly absorbed by the European economic crisis, but has since been branching out to other parts of the world. Recent work has included a blueprint for bonus caps for the European Commission (an amended version was finally adopted), and helping Norway’s sovereign wealth fund (the largest in the world) refocus its investment strategy – a strategy which could include enabling it to invest in emerging market infrastructure for the first time, including in India. Excerpts of a recent interview with Kapoor in London.

Has Europe learnt its lessons from the crisis and are we out of the crisis?

Absolutely not – I fear we are at a mid-point at best and an early point at worst…The kind of things necessary for the EU to recover may no longer be feasible. This is true at a national level with the rise of rightwing populist parties and definitely at the European level, where there has been a loss of trust between countries so acute that they would struggle on anything that is reasonably long-term, where you need a commitment, a grand bargain.

Fiscally the policy has been too tight – investments have been too low, we haven’t seen much rebalancing and Germany continues to think that what may be possible for a medium-sized economy – the export-led growth model – is actually replicable at the European level. No one from Mars is going to come down and buy our exports!

What is the significance of this failure by Europe?

One of the reasons I’m so emotionally engaged in Europe is that for everybody’s sake Europe and the EU mustn’t be allowed to fail. Growing up in India I idealised some things about Europe – I used to think of the EU as a template for what was possible and necessary at a global level, given our increasing interdependency. Imagine that if you woke up on a Monday and were told that India and Pakistan were going to war and your instinctive reaction was to laugh at them in the face – that it was a ludicrous idea. That is what France, Germany and the EU have achieved and nothing can diminish that achievement. Even after the crisis the EU remains the world’s most successful peace and prosperity project and we are risking the future of that project. Yes there are differences, but here is a group of countries with shared history culture and religion – within limits, and shared institutional structures…If this is the best they can do, what hope does humanity have of sitting the Indias, Chinas, and other countries of this world together and tackling long-term, more intractable problems such as climate change?

As a governance expert what do you make of the recent reforms in India?

Its been a humbling experience to realise that softer issues around governance, culture, trust, and social capital are far more important than the numbers game, which is why I am encouraged by Modi’s moves towards governance reform. My instinct is that he recognises India has never lacked for good policy – its always lacked for good implementation and good governance and rather than yet again coming up with grand policy announcements that fail during implementation, he has decided its very important to reform the bureaucracy. I have seen the change in behaviour of IAS friends and classmates – their behaviour has changed significantly in the last three months.

Are the delays of the India-EU free trade agreement a problem – and what does it mean for the relationship?

FTAs are like termites biting at one of the few success stories of the multilateral regime. Every time an FTA is signed part of the multilateral din dies, so globally its beneficial for everybody to take a deep breath and look at what can be done to improve the situation. Also, the terms of trade agreements with every passing year have become more and more asymmetric.

Much of the policy space that countries that are presently rich had in their development face is restricted for others as time goes on. There needs to be a pause to consider the terms on which these agreements happen

What should be done to take forward EU and India relations?

India and the EU are essentially the largest democracies in the world and with many of the shared liberal values. The economic situation in Europe means there are great bargains – and Europe has excess savings that don’t have any productive place to go to in Europe itself, so there is huge potential. There are so many natural channels for bilateral engagement – from security to finance and education.

To start with (India) needs more than (a handful) of diplomats in Brussels. The Indian Government as a whole needs to have a white paper on engagement with the EU – there is currently no coherent strategy – nor does the EU have one. The relationship has long suffered from neglect from both sides even though both sides have strong reasons to engage –it would be collectively beneficial not just for these two but also for external positive enforcement in the world in terms of values, security issues, high growth rates, employment, the deployment of capital.

What are some of the opportunities you see for Indian and European cooperation?

We have recently done work focusing on changing the investment strategy of the Norwegian sovereign wealth fund – with $910 billion on paper. It’s a true long-term investor – and would be the natural investor to make infrastructure investments in markets such as India. They are not currently allowed to do so, though the government has taken on our suggestion to opening it up to infrastructure investments. We have also been looking at things from the Indian side: there is a genuine lack of long-term capital – we need to look at alternatives to banks.

What do you make of the recent steps taken by the Government on tackling black money?

In taxation there’s a (rough) rule that 20 per cent always comply, 20 per cent always cheat, and 60 per cent pay taxes if they think others are paying taxes. India is starting from a very unfortunate place in the spectrum where people feel nobody pays taxes. India needs a positive shock to the system which could be a carrot or stick approach or a bit of both. We are not going to be a Sweden but we need to move in that direction. We have a lower tax take than much of sub-Saharan Africa. We need credible enforcement – for example there have been 50 or 60 cases of CDs stolen from tax havens – but India has never expressed an interest in them. I was advising the German government in 2006/07 when the first CD was stolen and while Germany shared details of citizens with countries that expressed an interest, India didn’t express any interest.

Without showing that this problem is being tackled, Modi cannot move India to a fiscally stable, fair system, which is a prerequisite for proper development. It’s also about the patience of one’s population and having a cohesive society. It’s remarkable that India exists with all its diversity, inequality, different values but these are things that we cannot take for granted.

Published on September 21, 2014
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