Can the Elephant run fast - India at a cusp?

Possibly never before in the independent history of 68 years has India been in such a position to double its economic size at a faster clip. Both macroeconomic and local factors represent an opportunity for the country to grow consistently at a GDP rate of atleast 7.5 percent. Multifarious factors are at work, which are favorably positioned for India.

Source:http://knoema.com/WBGEPGC2015/world-bank-global-economic-prospects-2015

It is not only the global conditions which give India this edge and historic opportunity. It is also the people at the helm, which can launch Indian economic growth story multi-fold.

Key discernible factors which I see at the moment aiding an imminent Indian storyJ

People

• ·         A decisive and immensely popular Prime Minister in Shri Narendra Modiji. Political Equity has been expensed to take tough economic decisions in last 15 months.
• ·         An acutely capable and respected Raghuram Rajan as the Reserve Bank governor managing the Monetary and Fiscal policy
• ·         Not to forget an equally adroit and well-spoken Finance Minister in Arun Jaitely.
• ·         New body for planning called Niti Ayog, replacing the defunct Planning Commission.

Perceptional

• ·         Improved “Animal spirits” within the country by outreach to the people
• ·         Brand India finding resonance globally with PM not sparing any effort to lure investments.

Global

• ·         China is in slowdown mode and is finally allowing its currency to devalue for saving exports! Other BRIC nations are not faring any better.
• ·         Biggest imported commodity, Oil prices being relatively low. Which is resulting in lower import bill and hence affecting Trade Surplus positively

Local

• ·         Minimum Alternative Tax clause on Foreign Institutional Investors has been revisited and dropped by the current dispensation.
• ·         Low levels of Inflation (commodity prices are showing some signs of rise with election temperature in Bihar, especially onion!)
• ·         Fiscal Deficit targets being maintained (Sale of ownership in Indian Oil as well as the boon of low oil prices)
• ·         Direct Cash Transfer scheme for subsidy (reducing leakage) and opening up banking with crores of new rural accounts.
• ·    Opening up of 2 new full-fledged banks and licenses provided to 11 payment banks
• ·         Impetus to “Make in India” and exports. Many concrete steps being taken
• ·         An ever increasing skilled demographic dividend! Number of youth and skilled people joining workforce is on the rise.
• ·         Start-up culture finding roots through investments by global investors and financial institutions/individuals. Flipkart, Snapdeal, Ola and Inmobi’s etc. are on verge of scaling bigger. More of their ilk is sprouting up, with young India bringing out ideas beyond the realm of IT.
• ·         Massive investments planned and already in execution to build capacity (Ports, roads and railways) and skill enhancement

Despite all the above, our honorable PM lamented recently or suggested that the Indian corporate community needs to be less risk averse. There are certain things which are irritants in kick-starting the growth.

• ·         Borrowing rates are still high for corporates. RBI needs to potentially intervene and reduce lending rates
• ·         Fear of US Fed rates going up has already triggered losses on Indian stock exchanges (BSE/NSE)
• ·         Bad Debts and NPA’s (Non-Performing Assets) are hampering Indian banks. These need to be restructured.
• ·         Indian corporates being risk averse, with private capital not being expensed!
• ·         Excess supply issues, with housing and realty sectors still replete with surplus. Limited buyers, housing prices need to drop.
• ·         Weak Monsoon in still agrarian country can cause commodity prices to rise.
• ·         Exports still weak due to weak demand in Europe and other countries. China’s currency devaluation will further muddy the waters for some export sectors
• ·         Political consensus at bay even for reforms like GST (Goods and Services tax) which could make India one single unified market for all. Bihar elections have thrown in more populist jargons!

In an inter-connected world economy, the constant chess game on maintaining low inflation, fiscal prudence and lending/savings rate is tedious. With India at a cusp, when world waits to see India overtake China as engine of growth, can this Elephant run fast finally? What will it take to get moving? I believe in next quarter some things could be game-changers, lot will depend upon how things pan-out. 

• ·         RBI governor would wilt and lower the rates in next quarter considering the low inflation regime at the moment. This could provide much needed impetus for stalled projects and give confidence to Indian industrialists.
• ·         Reducing the time and procedures for starting a company.
• ·        Swachh Bharat Abhiyan (Cleanliness drive in India) can become a precursor for better Tourism opportunity as well as foreign exchange. This no pollution sector can add jobs as well as build brand image too.
• ·         Like the gold deposit scheme, common people should be incentivized to go for bolder market options of investment rather than opting for FD’s and PPF schemes.
• ·  Increasing spending on telecom and power sectors for attracting investments.
• ·    More big ticket investments for enabling “Make in India initiative”, especially in the semiconductor, electronics sector. Smartphone penetration and services is increasing manifold. Time has come to have; albeit late, large semiconductor foundries in the country itself.
• ·         Last, but not the least favorable Bihar election result for ruling central dispensation will help build on “animal spirits” in the country.

As a keen student of Indian and world economics, I am excited to add and become part of the Indian bandwagon.