Amid sputtering global conditions, India is set to become the world’s fastest-growing major economy by 2016 ahead of populous neighbour China, which is battling an industrial deceleration. According to the International Monetary Fund’s latest forecast, India is expected to grow at 6.3% this year and 6.5% in 2016 by when it is likely to cross China’s projected growth rate of 6.5%. China’s economy has been grappling with a slowing property market, and overcapacity in its export-dependent factories hit by weakening shipment orders from slowing European and other economies. The Chinese economy, however, will continue to be big in size as its GDP reached $10.4 trillion this year, more than five times India’s nearly $2 trillion GDP.
Importantly, the IMF has said slower growth in China will also affect growth in most emerging countries, but in India a raft of recent reforms are to likely push investment and demand. The biggest threat to a new government is sometimes the unrealistic expectations that come with a landslide victory. In the case of the Narendra Modi-led NDA government, these expectations are based on a few assumptions. First, there is a dominant argument that the economy was in the boondocks because the UPA government accorded greater premium to political risk-management than reforms. Second, Mr Modi led a high-octane ‘achhe din aane wale hain’ poll campaign promising to usher in good days. Third, and more importantly, the current government enjoys a majority in the Lok Sabha, which should ensure a smoother passage of key legislation in Parliament. Over the last eight months the government has demonstrated its intent to walk the talk on its poll pledges. It has laid out the red-carpet for foreign investors with a string of initiatives such as ‘Make in India’, aimed at turning India into a manufacturing powerhouse and iron out procedural and bureaucratic irritants that are often cited as holding back investments.
It has also been a pleasant sight to spot a flurry of reformist intent, if not downright action. Fuel prices have been decontrolled; foreign investment norms in insurance have been eased; disinvestment is on track with the promise of more floating shares in our stock exchanges; a new coal allocation policy is in place; and the Centre is in the last stage of discussions with states for a unified goods and services tax. If indeed an opportunity is presenting itself, the government has shown its willingness to exploit it prudently. Having begun well, the government will now have to go the distance to decisively shift the policy mix. If gradualism was more sensible in the last few years, this should be the year of a big-bang approach.