Masala bonds are bonds that are issued in London by Indian companies in rupees, rather than in sterling. This is one example of how the UK is remaining a player in the flow of foreign capital. Britain acts as an intermediary in those capital flows. International investors can buy masala bonds in the UK using rupees. This provides a financial benefit to more than just the Indian firms that raise the money, but also to UK investors and the stock exchange.
The Indian economy is the fastest growing of what are referred as the BRIC economies. The term covers the economies of Brazil, Russia, India and China – the four major developing economies. The UK is now attempting to increase business with India due to the slowing down of China.
Chinese manufacturing has hit a 3-year low, and while not technically in recession, its economy is slowing down. In an attempt to tie closer bonds with India, British delegations are providing advice to India on a wide range of economic factors. Among these are bond markets, pensions and general infrastructure. They hope to get more business and contracts into the UK from India as a result of this.
Masala bonds are one of the factors involved in these discussions. Uday Kotak (Kotak Mahindra Bank) is one of the Indian chairmen involved in the partnership which is backing this initiative. People from the Bank of England, TheCityUK and Barclays are just some of those from the British side. Also included are John Griffith-Jones, the chairman of the Financial Conduct Authority, and the CE of the London Stock Exchange, Nikhil Rathi.
Indian policymakers are being advised by TheCityUK on how to develop the corporate bond market in such as way as to enable firms to borrow directly from investors – and so avoid doing so through banks. The partnership is currently doing well in assisting Indian businesses and investors. One example is UK assistance with the planning of new Indian insolvency regulations. These would give investors more security when investing in India.
Masala bonds are just one of the initiatives taking place to ensure that the UK does not lose out should the Chinese economy slide further. The USA is investing heavily in China, but the UK is making sure it has agreements with other BRIC economies. It’s a sensible thing to do, given the current volatility of the Chinese economy. No doubt, eyes are on the other BRIC economies.
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