By Mike Caggeso
Associate Editor
India's government rejected a bid by Citigroup Inc (C) to raise its equity stake in the National Stock Exchange of India Ltd. from 2% to 5%.
Under federal guidelines, foreign investors are allowed to hold up to 5% in an Indian stock exchange, and Citigroup is within those bounds. Nonetheless, the cap for direct foreign investments in NSE is already at its maximum of 26%, the Economic Times reported.
Citigroup challenged the ruling, saying that it would be making the acquisition through its India-based subsidiary.
It's easy to think that India's government threw up a brick wall on Citigroup because the New York-based company is no longer the popular bank on the block. But the bottom line is that any non-Indian company that wants a stake in the NSE will be rejected.
"I think the Indians are just interpreting their own regulation narrowly," said Martin Hutchinson, a contributing editor for Money Morning. "They will be more sensitive about foreign ownership of a stock exchange than other assets."
This isn't the first time India's policies have been chided for stifling its economic growth.
Labor laws are notoriously strict in India, and the manufacturing sector has been bound in a cocoon of red tape. For example, in the manufacturing industry, a company that employs more than 100 people must notify the government of any plans to layoff or fire a single worker. However, that law does not apply to the service sector.
"We are overpoliticized and all of our problems have a political solution," J.J. Irani, the director of Tata Sons, said in an October interview with BusinessWeek. "Economic problems need economic solutions. Religious problems need religious solutions. Social problems need social solutions. But everything here is an industrial solution, a political solution."
Like it or hate it, this fits into India's "steady and sure" mantra for economic growth. For one, the country's growth - especially compared to its ballooning neighbor China - is primarily organic.
On top of that, the government has raised interest rates six times in the past two years, leading some to believe the government is damaging growth, not controlling it.
News and Related Story Links:
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Economic Times:
Citigroup's bid to up stake rejected
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Money Morning:
Citigroup's Troubles Continue to Grow