‘Licence Raj still there, but opportunity too big to ignore’

Deepak Shahdadpuri, Managing Director, DSG Partners Asia, and an angel investor, has done over 40 deals in India over the past decade. He specialises in early-stage investments in businesses in the food and consumer business segments and has an impressive roster of successful investments, including Sula Vineyards, Cleartrip and Bakers Circle. He spoke to BusinessLine during a recent visit from Singapore. Excerpts:

What businesses do you prefer to invest in?

After 15 years of investing in India, I realise I am good in some areas and I tend to keep away from the rest — typically businesses which are heavily regulated. Just look outside the window — a young urban population, growing GDP… even in a bad year, we have 6.5 per cent growth. I am excited.

One area India can do well as a country, and which I spend a lot of time on, is food processing. Two reasons — India has 1.4 billion people. And food wastage is of the order of 40 per cent.

We can, given our climatic conditions, produce a lot for own consumption and exports. Fruits and vegetables can be a large sector for employment.

There are a lot of interesting opportunities, from contract farming to value-added products, primarily for India but with a view to exporting.

How has your journey as an angel investor evolved over the past 10 years?

There is no magic wand. This business is a permanent apprenticeship. At one level, our job is very easy and at the same time very tough. I don’t run the businesses.

I provide seed capital to entrepreneurs. I do only consumer businesses and when I look at India, it reminds me of Singapore, Thailand, Malaysia, and Indonesia about 25 years ago.

Consumers have become more demanding, the world has become flatter, media has helped bring the world to your doorstep, and the Indian consumer wants to consume the same thing his counterpart in London wants to.

The demand is there. There is opportunity to create products and services that are either being demanded today or where there is no demand today, but we believe that we can create demand.

The Sula Wines investment is an example of that. When I invested in Sula, wine consumption was high globally.

India was the second-largest consumer of alcohol spirits — primarily molasses based — either whisky or brandy/rum. But we didn’t drink wine.

But as GDP grows, we have seen all emerging economies moving up the value chain and wines are aspirational and its consumption starts going up. At that time, there were two players in the wine market.

We thought India will go the same way as South America or South Africa, where more people will move to wines. We backed Sula, it took a while, but it clicked.

Do you see any improvement in the ease of doing business in the last two years?

It is still difficult here. I compare living here with two cities that I have lived — London and Singapore. India is a pain.

There is a lot of paper work, lot of licences, and regulations keep changing often. As an investor, look at the changes with regard to P-notes, Mauritius route, short-term capital gains tax, and the lack of clarity. But the opportunity is too big to ignore. Is it better than before?

Yes. Is it better for people starting up? I don’t know. Try opening a restaurant here — you have to get 41 licences. It is tough.

In Singapore, you have 10-11 licences. Think of a young guy starting his first restaurant here.

He will be so exhausted when he finally opens that he will think, maybe I won’t do it again. It is not easy.

The good news is that entrepreneurs have conviction and will say we will deal with it because this is the system.

My point is, why have a system that puts up more barriers than required? The Licence Raj has not gone away.

What is the view outside of the Modi government?

The outside view is that the policy of Modi government may not be popular in the short term but they are putting in place policies for the long term or the right foundation for long-term growth.

There are structural reforms that still have to be done.

The government has begun cleaning up the banks…

Yes, the bank clean-up which has been talked for decades seems to be happening.

No one knows for sure what the quality of bank assets is. Indian banks do not like to foreclose. Without foreclosure and assets being taken away, there is no rejuvenation.

Won’t that happen with bankruptcy law?

We don’t know. A lot of noise has been made, and the intent is there. We haven’t, however, seen a track record of following things through.

There is a Darwinian evolution that needs to happen. Things need to get destroyed and then come up again. No one sets out wanting to delay or not repay. But in most economies, there is a risk or dark consequences of doing so.

In India there are no consequences — and that distorts decision making.

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