Why we should never waste a good crisis

From her perch in London, Sherry Madera, Refinitiv’s global head of industry and government affairs since March 2019, has the unique ability to feel the pulse of economies.

Her role at Refinitiv—a company known for providing financial market data, and which is jointly-owned by the Blackstone Group and the Canadian multinational, Thomson Reuters—involves engagement across government, policy initiatives, industry trends, and regulatory developments.

Having joined Refinitiv from the City of London—where Madera was economic ambassador to Asia—in her earlier stint as Minister-Counsellor and Director at the British Embassy in Beijing, she was responsible for promoting trade and investment between the U.K. and China.

In an email interview with Fortune India, Madera shared her views on a wide range of issues: the outcome of the U.S. presidential elections on emerging economies, to India and its infrastructure, the U.S.–China and India–China relations, the impact of Covid-19 on the global economy, the state of India’s bond markets, and how she sees the stimulus measures from India. Edited excerpts:

How do you see the outcome of the U.S. presidential elections impacting emerging market (EM) economies, including India?

As the world’s largest economy, who runs the U.S. from the White House impacts all global markets—and India is no exception. In the last 4 years, Trump has clearly increased engagement with India and courted the concept of the “Quad,” which is an alliance between the U.S., Australia, Japan, and India. A Trump second term will likely see this alliance continue and potentially be reinforced. This has potential upside for trade, foreign direct investment, and financial flows.

Do you expect the outcome of the presidential elections having a direct effect on Indian infrastructure space?

Indian infrastructure desperately needs investment—as does infrastructure in other countries including the U.S. itself. Biden’s platform includes renewed emphasis on upgrading America’s own crumbling infrastructure, which may either limit America's support overseas or look to include partners in building infrastructure investment opportunities globally.

Given the enormity of the Covid-19 pandemic, how do you see the Indian economy after the largest decline in the GDP?

In India, the (S&P) BSE Sensex is down 3% year-to-date, as of end of October, compared to double digit declines in other EM equity markets. India’s currency is also holding up well versus other EM currencies, compared to the dollar since year end. However, the reality of the economic impacts from Covid-19 have yet to be seized in India which is still very much in the throes of the health crisis.

India will need to attract patient long term finance to build robust gross domestic product (GDP) growth in 2021, and beyond. The attractiveness of the Indian economy to foreign investors depends significantly on the Indian government and financial regulators’ ability to support transparency and efficiency in the markets.

We are already seeing a number of regulatory shifts which support this direction of travel, but fundamental challenges exist including India’s closed capital account and lack of Indian rupee’s internationalisation. The Indian economy will need to redouble its efforts to be an attractive home for global capital that includes, but is not totally reliant on, the interest rate differential offered.

Do you see the U.S.-China relations getting terse, or improving, subject to the outcome of the presidential elections?

A hard line on China is a bipartisan issue in the U.S. which will continue no matter the result of the latest presidential election. There is, however, a question of how this position on China will be implemented by the White House under the next administration. A Trump re-election will likely yield more of the same—sanctions, additions to the entity lists, and a technology cold war. A Biden win may usher in more consultative and collaborative discussions to achieve America’s goals on trade, human rights, and access to technology and capital.

Specifically on India, do you believe that the government's stimulus measures will fructify in the near term?

India has so far put in place a stimulus package equal to approximately 6.9% of GDP. This pales in comparison to other mature markets, including Japan who have implemented a stimulus of more than 21% of GDP. India has had many measures including direct cash transfer to poor, free food grants, MSME loans, loan repayment deferment, etc. However, the direct cash transfer as compared to developed economies is much lower, due to having almost no fiscal room.

Lower direct fiscal stimulus has also added to the massive economic impact seen in the quarter ended in June 2020, during which India contracted by 24% year-on-year. More needs to be done, but the Indian government doesn’t have the fiscal space. Adding to the woes is increasing tensions between the centre and the states on financial disbursements more widely. We will need to watch and wait to see how India fares overall and if there are state winners and loser in the coming years exacerbated by the pandemic.

What are your views on the relaxations for foreign investors in the Indian bond markets? Do you think that Indian corporate bond market offers a stable opportunity, beyond the relatively higher yields?

India’s corporate bond market has languished for decades with low volumes and lack of interest from investors in anything below top rated paper. The relaxation for foreign participation has already attracted an influx of $538 million into Indian bonds in September. However, the market itself needs proper attention, as primary bond offerings from India domiciled issuers declined by an annual 12.8% in first half of 2020.

Does the Covid-19 pandemic and the disruptions therefrom offer an opportunity to bring about serious reforms? What kind of reforms, in your view, would help the emerging economies, including India?

Never waste a good crisis. This may indeed be an appropriate rallying cry for India’s financial services industry. It needs to ensure it has strong plans to attract and retain capital to build its economy back from the Covid-19 pandemic. Already, we are seeing moves by the Reserve Bank of India (RBI) to relax rules on foreign participation in the markets, and to make changes that have been requested by international financiers for some time (including OTC netting).

The Gujarat International Finance Tec (GiFT) City, under its unified regulator, would be an opportunity for India to have a near-shore financial centre. While fungibility of GiFT into the domestic Indian market is not in the plans yet, but some hopeful participants may see the centre as an opportunity for a pilot that may widen. India has already set in motion its much needed Insolvency and Bankruptcy Code (IBC) development. Though sadly paused due to Covid-19, IBC should help India remain attractive to international participation. Fundamentally, India offers investors a rare positive interest rate as many mature markets hover around 0% returns.This is attractive in its own right, but needs to be paired with regulatory clarity and reforms to retain and attract capital for the longer term.