The government's bold move to allow foreign direct investment (FDI) in retail and biting the bullet on fiscal discipline by raising the price of diesel have re-kindled hopes of an action-packed Act II on India’s reforms opera that began in 1991 when Prime Minister Manmohan Singh, then as finance minister, ended the Licence Permit Raj.
Reform was then a receipe for entrepreneurship, employment, income and spending.
The next wave of reforms are mainly about infrastructure, change of tax regimes and financial services. Experts said investors are watching the signals that the government sends out.
These reforms are vital to finance the $1 trillion ( Rs. 55 lakh crore) — more than half the value of the national GDP — India is estimated to require over the next five years to overhaul its infrastructure, which, if built, could potentially catalyse every economic activity from farming to manufacturing and services.
Experts said the government needs to identify and fast-track 25-30 infrastructure projects.
“The government could support speedier implementation of projects that are already under way, or else encourage new projects,” Chetan Ahya of Morgan Stanley said in a research report.
“These projects could be those that have a limited call on land and mineral resources.”
S&P and Moody’s have hailed the government’s reforms initiatives announced last week, but an upgrade in their India’s sovereign ratings appears bleak.
Fitch Ratings said: “We await evidence of implementation of the measures on the ground and will also look to see how the economy reacts.”
According to Ahya, the institutional capacity to allocate critical national resources such as land and minerals to the private corporate sector in a transparent manner for rapid industrialisation and the enactment of the Goods and Services Tax Act (GST) need to be accelerated.
Confederation of Indian Industry director-general Chandrajit Banerjee said: “Revenues need augmenting. Measures like settling out of court the tax disputes worth Rs. 400,000 crore, disinvestment and monetising locked-up assets of public sector banks could be considered for this.”