View: The IPO rush in the US illustrates the capital opportunity the government of India is wasting


Vivek Ranadive’s Bow Capital recently floated a Special Purpose Acquisition Company (SPAC) and raised $480 million in an initial public offering (IPO). Snowflake, a cloud management company walked off with the biggest tech IPO in history, reaching a valuation of $70 billion. Many other IPOs are on track. There is an IPO fever raging in the US, apart from Covid19. China also has an IPO boom, with a mineral water seller upstaging Jack Ma as the richest man in China after an IPO.

It shows that there is a mass of capital out there hungry for profitable deployment and raring to finance infrastructure and revive growth in India, if only the government shows the sense to offer it assurance as to returns and predictable tax treatment.

Vivek Ranadive’s name is of interest, in particular, to those of a leftist persuasion who still bear the burden of Stalin’s atrocities on their conscience and in the kind of political party they see as the vehicle of social redemption. He is the nephew of BT Ranadive, one of the founding leaders of the Communist Party of India (Marxist). The nephew settled down in the US, founded a software company that integrated, for the first time, all the relevant economic and financial information with the stream of stock and currency market data that streamed on to a trading terminal’s screen. He took the company public at the height of the tech boom in the late 1990s, became a multi-millionaire, sold the company to a private equity company for over $4 billion and bought a basket ball team, while continuing to invest in technology companies.

This year, he formed his SPAC. SPACs are a hassle-free way for a company to go public. SPACs are formed and listed, on the strength of their founders’ reputation. The investors trust their ability to find and acquire a company that would make their investment in the SPAC worthwhile. This is why a SPAC is also called a blank cheque company.

According to one report, 60 of the 95 IPOs in the US this year took the SPAC route. A company that wants to get listed reverse-merges with a listed SPAC, and avoids having to file a prospectus, engage and engage with merchant banks, hold roadshows, and so on.

“Communists in India continue to believe, or at least, pretend to believe, that capitalism has become moribund and is about to collapse. They steadfastly refuse to entertain a project of promoting broadbased capitalist growth in India, as if there were some other path of growth possible. Thus, they marginalise themselves to the periphery of the polity, as flat-earthers whose other-worldly economic policies would spell stagnation, if not ruin.”

A nephew of one of their tallest leaders lives out the vibrant potential of capitalism to create new wealth, income and prosperity.

But this is not just a sorry tale of Communist apathy to the potentialities of capitalist development in contemporary India. It is also a tale of government failure to tap into the pool of global capital desperately seeking returns as extra-easy monetary policy forces down the return from bonds across the developed world.

Consider a pension fund that promises its investors a particular amount of pension or a particular rate of return, and invests accordingly in a mix of products that diversify risk and optimise returns. Suppose the fund had assumed that a government bond would yield 4%. However, incessant creation of money by the world’s largest central banks, in the wake of the global financial crisis and, now, the pandemic, to buy tonnes of government bonds and, increasingly, corporate debt has, combined with negative policy rates in Europe and Japan, pushed yields close to zero. The fund has two options, if it does not want to default on its promise to its investors: increase the size of the corpus or switch investments to products that offer higher rates of return and reasonable safety.

This is what makes some proactive resource mobilisation by the government of India possible. It could set up a special purpose vehicle, offer a guaranteed 4% return in dollar terms, shorn of the risk of rupee depreciation. Just a fraction of the money feeding the IPO frenzy in the US needs to be distracted to India. Money would pour in. With this money, the government could finance the assorted projects identified in the National Infrastructure Pipeline. Additionally, it could fund investment in digitising government services, building additional healthcare infrastructure. The greater the investment, the greater the demand for cement, steel, aluminium, earthmoving machinery, trucks, forklifts, software, knowhow and advice. The greater such demand, the greater the employment and the greater the output of the private sector that has been languishing hitherto.

This is the route to revive growth sustainably. The billions of dollars coming into the special purpose vehicle would not add to the fiscal deficit. Only the implicit cost of the guarantee would figure as a contingent liability on the government’s books. The infrastructure built with the funds would boost growth and productivity across the board, and this, in turn, would offer a natural hedge against currency depreciation, making servicing of the capital perfectly manageable.

By failing to take advantage of the surfeit of global capital scouring the world for profitable deployment, the government fails the people of India, in desperate need of growth, incomes and jobs.

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