The Story so far on the Modi journey
Narendra Modi completed his first year in office as Prime Minister of India on 26 May 2015. To understand the policy emphasis one needs to first understand the background. On the eve of his appointment, India was faced with a difficult economic outlook including falling growth rates, inflation over 10 per cent, problematic fiscal deficit, trade deficit and currency depreciation. This was coupled with an administration that seemed to lack leadership and made policies that increased the uncertainty for business. As a result the confidence of its people and the business community was lost. International investors had also become disillusioned. The vote for Mr Modi was a vote for change and a vote for hope. Mr Modi's first task as Prime Minister was to get the business confidence back and create more jobs. Only two million jobs were created per year previously, when in reality the government needed to generate 12 million to take advantage of the demographic dividend. Some of the key achievements and reforms of the Modi government in the first year have been: • Restoring macroeconomic stability and growth dynamics. Growth has increased to 7.5 per cent, inflation is falling and the rupee has stabilised, albeit helped by falling oil prices. • The launching of 'Make in India' campaign to create jobs with initiatives such as setting up an industrial corridor authority, an industrial cluster, smart cities and strengthening intellectual property regime. • Redefining the relationship between the central and state governments by launching a competitive federalist policy and abolishing the planning commission. • Improving the business climate with new initiatives such as e-biz. This electronic platform reduces human intervention and improves the business environment by enabling fast and efficient access to government services and approvals. • Liberalising FDI policy in insurance,defence, construction and railways. • Deferring GARR by two years. • Planning to launch Goods and Services Tax (GST) by 1 April 2016, changing India into a single market and simplifying matters. • Increasing infrastructure spending. • Emphasising reform of the PPP process to invite private participation in investment. • Launching of MyGov.in, a national scheme to crowd-source policy ideas from the public. • Launching of Mudra Bank (Micro Units Development Refinance Agency) - to assist credit availability to small entrepreneurs. Making 'zero balance' bank accounts available for the poor. Since the launch 40 million new bank accounts have opened and US$2.3 billion has been mobilised. • Auctioning of most of the coalmining licenses issued in the past two decades. The Supreme Court cancelled them because of corruption. That raised over two trillion rupees (US$32 billion). • Promoting foreign investment into India through a record number of overseas visits. Clearly Mr Modi in his first year has given a significant amount of direction towards the liberalisation of the economy which has been positive to economic growth. Challenges The key challenge for Mr Modi will be getting some of his other economic reforms approved by the Upper House. This was demonstrated when the government tried to pass the Land Acquisition Act, a key piece of legislation to develop the industrial corridors which was blocked by the Upper House. Remaining work to be done includes reforms in the labour market as well as dealing with shortage of power for industry and improving the tax regime to provide investors and businesses with the confidence. Whether the electorate in the numerous state elections support Mr Modi's government will need to be seen - the elections in the state of Bihar & UP will give us an idea. Opportunities There is no doubt that the market opportunities that India offers foreign investors are enormous given the size and growth of the economy and the sheer numbers as well as the demographics . The government has identified 25 sectors that can be developed. Details have been provided on www.makeinindia.com explaining the reasons to invest, essential statistics, growth drivers, FDI and sector policy, financial support, as well as information about foreign investors active in the sector and details of relevant agencies. We feel opportunities in the next two years will be in consumer products, industrials, technology, media, telecoms and life sciences. In his first year, Mr Modi has gone some way to repair the damage of the past and restore the confidence both internally and externally. He wants India to be the 'go to place' in Asia. Business leaders and investors including those from the UK are encouraged by the various changes and reforms. However there is a lot more to be done and they would like to see more of this direction turning into on ground reality which seems to be taking time. The journey has started, but is far from over.
The above article was published in India Inc's print edition of the India Investment Journal launched in June 2015 in conjunction with the Policy India Roundtable 2015.