What's in store for India?

The recently held sixth Horasis India Business Meeting in Liverpool, UK was largely dominated by discussions around the new government in India. But how are things going to pan out for the business community within the country, as well as those interested in investing/expanding there? Our Nitin Shingala looks at what may lie ahead.

From an international perspective, Modi’s ascension to the Prime Minister’s office raises a most pertinent question. Will the new government succeed in rebooting India’s “economic miracle,” which has sputtered in recent years? 

The Indian economy over the past few years has gone through one of its worst periods in its history. Growth had plummeted from 9% to 5%. Sticky inflation, populist subsidy measures, oil price shocks and a devaluating currency have left the economy in need of a much needed boost. It is clear that there is no magic remedy for recovery. Policymakers need to focus on bringing the economy back on track to ensure steady and sustainable growth.

The Horasis forum was upbeat about India’s growth prospects after the new government took charge, indicating a sharp improvement in investors’ sentiments amidst heightened expectations that the new government means business. Most respondents exuded confidence about prospects relating to economic growth, decline in price rise and twin deficits — fiscal and CAD — recovery in exports, buoyant foreign capital inflows and strengthening of the rupee.

Participants discussed a set of possible post-election trajectories. In a vulnerable global economic environment, India remains one of the world’s growth engines. Its outward engagement with the rest of the world in terms of trade and investment continues, and it is viewed as a land of opportunity. The meeting focused on the new government’s policies and the related changing paradigm of the Indian economy. Sustained structural reforms aimed at enhancing competitiveness will be necessary to bolster and boost India’s economic growth and ensure the rising prosperity of its population in the future.

At the Horasis Meeting it was generally felt that a stable government at the centre will bring growth back to India, along with a mild upturn in some economic indicators in the form of recovery in exports, decline in twin deficits, buoyant foreign capital inflows, strengthening of the rupee and moderating inflation; this expectation has provided a big boost to business sentiment. But the forum cited economic uncertainty, low GDP growth and high inflation as its top-most concerns, highlighting the need for stepping up efforts to further improve business sentiment and remove supply bottlenecks.

The new government faces a mammoth task to meet India’s soaring expectations. The participants identified four main priorities for the Indian economy:

  • There is a great desire for change, especially among business leaders, India’s youth and the middle class. The new government will have to slay the bureaucratic inertia which has for too long held the country back. The economy has to be actively revived. Reforms have to grow up.
  • The key sector to watch is infrastructure. Incentives to nurture public-private partnerships in infrastructure sectors are essential, acting as stimuli to private investment and faster growth.  Some of the other key focus areas of discussion were, education, skills development, focus on renewable energy and opening up government controlled markets in India.
  • India needs to improve its investment climate. If foreign investment is to achieve its full potential as an accelerator of economic growth, there needs to be greater clarity in the approvals process, and in the legal and tax systems.
  • India must create 10 million jobs a year - four times the pace of the last five years - to absorb youth into the workforce. Also, the education and training of future generations is of the utmost importance as a factor in collective development.

Overall, the participants of the 2014 Horasis India Business Meeting felt that there is renewed optimism about the Indian economy ever since the new government took over. Prime Minister Narendra Modi’s 10-point agenda presented at the first meeting of his cabinet has been welcomed by everyone and is a good start on the path of economic reforms.

The participants were upbeat that proactive implementation of various reforms will help India to realise its growth potential. This has also been echoed recently by UK Chancellor George Obsorne: "There is a lot of buzz and excitement about India. Over the last seven weeks, there is a real sense that India is firing on all cylinders".

 
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