The change of guard at the Centre following the BJP’s landslide victory had raised expectations among people and investors that stalled policies will now get a push with Prime Minister Narendra Modi and his core team of reformers such as finance minister Arun Jaitley playing a big role in economic management.
The BJP has long said that it had inherited an economy that was in doldrums due to mismanagement by the Congress-led UPA. Over the last six months, the NDA government has unveiled a string of measures including lifting of state controls on pricing of diesel, plans to put up coal mines for bidding and as also a signature initiative ‘Make in India’ to turn India into a manufacturing powerhouse, remove bureaucratic sloth, make the country more investor friendly and aid its economic recovery.
In August, the government launched the Jan Dhan Yojana, an ambitious initiative to end “financial untouchability”. India’s wholesale inflation has rate plunged to five year low of 1.77% in October, intensifying pressures on the RBI to cut interest rates leading to lower EMIs.
The government has launched `Digital India’ a multi-billion dollar plan that aims to usher in a digital revolution by moving everything online--from education to public services to bureaucracy Upto 100% FDI in many areas of railways have been allowed from 26 to 49% in defence. Likewise, FDI in the construction sector has been eased.
The fact that many global chief executives and top bankers of Wall Street icons have met is perhaps a sign of turnaround of India’s image as an investment destination. These meetings with global CEOs and influential bankers are clear signs that the investors view the Modi government’s commitment on reforms and easing business environment as serious intent.
Japan and China has committed foreign direct investment (FDI) worth $55 billion in India over the next five years. The finance minister Arun Jaitley has reiterated the government’s commitment to walk the talk on fiscal discipline pledging to keep the fiscal deficit—a measure of how much the government borrows to fund its expenses-- at 4.1% of GDP even as he underlined the government’s bold reformist intent.
The government has also laid out a roadmap for reforming India’s subsidy regime to make it more efficient based on a report that a panel headed by former RBI governor Bimal Jalan have been tasked to submit. While, there is no gainsaying the fact that the economy is in a much better shape now, pressure will build for more major restructuring needed for India to remove possible constraints to growth.
The government will have to move on major issues such as land acquisition, the infrastructure deficit, investment in human capital, the lack of regulatory consistency across states and raising the FDI limit in the insurance sector from 25% to 49%.
With low energy prices, the currency stable and core inflation falling, interest rates are likely to come down. This favourable climate may well be time for “big-bang reforms”.