The new government must lift the policy freeze and make it easier to do business in India
The proximate risks of the roiling investor sentiment are: Policy inconsistency and political instability. Investors want hassle-free entry into the Indian economy. India continues to be seen as a dodgy destination for anyone wanting to do business here, a fact that even the government now has begun to admit.
Corruption, red-tape and inter-ministerial differences were resulting in delayed decision-making, which in turn can hurt business sentiment. India is ranked 132 among 185 economies in the World Bank’s latest annual ‘Ease of Doing Business’ report. Starting a business in India is daunting — it requires going through 12 procedures, which can take 27 days and can be expensive. Registering a property or building a warehouse is time-consuming.
A lot is riding on the Narendra Modi-led government’s first budget — likely to be presented in the first week of July— to help the economy claw out of a crippling slowdown as also on how it plans to deliver on some of its electoral promises, including jobs and price control. Quick decision-making and speedier implementation are vital to overhaul India’s collapsing infrastructure, which, if built, could catalyse every sector, from farm to factory, spin jobs and multiply income.
First on the to-do list, as widely expected, is to get project clearance and implementation expedited. Reducing regulatory uncertainty and simplifying procedures for obtaining clearances should be a priority. It would also help boost investor confidence appreciably if the government can set up a single-window clearance facility for investment related to infrastructure projects. The lowest-hanging fruits are fast-tracking of projects in the pipeline.
All eyes will be also on how the new finance minister balances the budget books without hurting India’s vast consuming class, and also with limited legroom to splurge on populist welfare measures. Global credit rating agencies, which have spared no punches in criticising the policy standstill during the UPA government’s latter period, will be keenly watching the pace at which the new government lifts the policy freeze.
Already, the BJP’s landslide victory has injected a strong sense of optimism in India’s financial markets. The key is now to take this optimism to the real sector with policy prescriptions that will yield tangible results.