|Indian economy – Continues to gain steam
The Indian government, elected into power with a majority mandate on the platform of economic reforms and growth, is approaching its second anniversary in office. The report card on its performance is largely positive, but there are certain areas for improvement.
On the positive side, India has overtaken China to become the fastest growing major economy in the world. For the fiscal year ending March 2016, most estimates peg GDP growth at 7.6%, which is particularly positive in light of two consecutive years of poor monsoons. Benign oil and commodity prices have led to a controlled level of inflation, reduced fiscal deficit and enabled the Central Bank to reduce interest rates.
Opening up of sectors such as railways, defense, insurance, medical devices to FDI, has helped attract record levels of foreign investment, which should be further augmented by recent announcements on FDI increases in e-commerce marketplaces and other online business models. In a recent E&Y survey, India was ranked as the most attractive investment destination in the world, ahead of China and South-East Asia.
The “Make In India” program, which aims at making India a global manufacturing hub, has attracted over US$400 billion of overseas investment commitments. The “Skill India” program is targeted towards ensuring that enough trained workforce is available to meet the manufacturing demand.
While ensuring attractiveness for India as an investment destination, the government has also kept its promise of meeting fiscal deficit targets – an achievement that has been lauded by many.
However, political logjam has made delivering on other promises harder for the government. A much-awaited reform on a central goods-and-services tax, aimed at creating a single market with improved efficiencies across India, remains stalled. Land acquisition and labor law reforms are also on the back burner. Weak exports due to tepid global growth and a hangover from bad loans on the books of banks have led to muted capital investments and dragged earnings growth, which have also had an impact on equity markets. Overall infrastructure and ease of doing business, while improving, still have much room for enhancement.
Considerable ground has undoubtedly been covered in the last two years. Many believe that that next decade (and more) belongs to the country. With all eyes trained on India, the government clearly remains focused on continuing the reform momentum and leveraging the growth opportunity.