IFR India Special Report 2015

IFR: India’s corporate bond market still lacks depth and sophistication. What is Sebi doing about it? Sinha: Sebi has recently taken a whole range of steps to develop and deepen the corporate bond market. We have issued guidelines to set up dedicated debt segments on stock exchanges with separate platforms for retail and institutional investors. This has already been implemented by NSE, BSE and MCX-SX. We have established a risk management framework for the dedicated debt segments of stock exchanges. This also codifies the DVP-3 (Delivery versus payment) settlement of corporate bonds by clearing corporations, thereby guaranteeing the settlement. This step is geared towards providing the guaranteed settlement facility which will help in attracting more investors to invest in such corporate bonds and thus lead to increased liquidity. With a view to encouraging trading in corporate bonds by institutions, such as banks, insurance companies and others, Sebi asked the Ministry of Finance to mandate that such institutions trade a certain proportion (say 20%) of their trades in corporate bonds on the exchange platform. In the next three years, the entire trading by such institutions may be shifted to the debt segments of stock exchanges. This move is intended to bring the trading activity of these institutions which currently takes place over the counter onto the exchange debt platform. “By increasing investor awareness and education programmes all over the country, we will continue our efforts to increase the trust of investors in the Indian securities market and thereby bring in more investors. We have written to the Reserve Bank of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory and Development Authority and the Employees’ Provident Fund Organisation to rationalise the investment restrictions on the entities they regulate and to move towards the prudent investor regime, as envisioned under the recently released report of the Committee on Investment Pattern for Insurance and Pension Sector. This has been done to encourage these vast pools of capital to invest in the domestic bond markets across the entire rating curve. We have amended the debt regulations to include a clause on consolidation and re-issuance of debt securities and right to early redemption by ways of issuing callable and puttable bonds. The enablement of consolidation and re-issuance is likely to avoid the fragmentation of the debt market and will help in creating large floating stocks, which could attract more investors to corporate bonds. In last few years, the proportion of bond financing versus bank financing has gradually moved in favour of bond financing. During 2010-11, the proportion of bond financing to bank financing was around 23.5%, which has gradually increased to around 27% during 2015-16. This implies that more and more issuers are now tapping bond markets for their debt financing. IFR: Is Sebi considering any action to ensure investors, including mutual funds, are aware of the risks in corporate bonds, especially after Amtek Auto defaulted on its bonds? Sinha: Sebi believes that mutual funds and asset management companies are keeping a close look at their debt portfolio, even though there are no regulatory guidelines mandating in-house credit assessments. Nevertheless, Sebi has made clear to MFs/AMCs that they are expected to give special attention to internal exposure limits at single issuer level, at group level for sister entities and at sector level. We have also said that while external credit ratings may be a useful input, it is important to have a full internal appraisal of the credit risk (as well as other risks) when making investment decisions. This is even more so in respect of secondary market purchases. IFR: Sebi is considering moving primary corporate bond deals to an electronic platform. What progress has been made on this front and what is the rationale behind it? Sinha: Sebi recently pro

Several Indian companies are turning to offerings of asset-backed bonds as an alternative source of funding and bankers expect the trend to accelerate as many cash-strapped issuers from the infrastructure and real-estate sectors spot an opportunity to save on borrowing costs. A handful of asset-backed structures emerged in 2015, pointing to the growing popularity of a format that can be tailored to suit the demands of both issuers and investors. “Structured bonds offer good opportunity of diversification to new issuers and higher yields to investors, including mutual funds,” said Rahul Bhuskute, head of structured & credit investments, ICICI Prudential AMC. As of September 30, his fund had Rs1.6trn of assets under management. “The sponsor profile is relevant for refinancing. The sponsor is also the manager of the property and hence, during refinancing this fact plays a big role.” Mutual funds have emerged among the key investors in these asset-backed offerings, with proceeds mainly going to retire high-cost bank debt. Property-backed bonds are a local version of commercial mortgage-backed securities, or CMBS. Following last year’s marquee transactions from DLF and K Raheja Corp, at least two issuers have completed such offerings in 2015 and more are in the pipeline. In June this year, Velankani Information Systems raised Rs3.15bn from a five-tranche securities, backed against receivables from the commercial leases of its IT park and a hotel in Bengaluru, in operations for over 10 and five years, respectively. The eight-year securities, locally rated AA (SO), have a put/call after year five. The paper yields in the 11% to 13% range. In August, Phoenix Mills raised Rs4.5bn from five-year securities backed against rental income from the borrower’s Phoenix Marketcity mall in Chennai. Offering a monthly coupon at 9.95%, or an annualised yield of 10.41%, the securities scored an AA+ rating and had three mutual funds as subscribers. India’s biggest listed developer DLF raised Rs9bn last year when it sold two different bonds backed against lease rentals from its shopping malls. It has plans to raise a further Rs36bn through similar offerings. Such structures present a significant opportunity. In real estate alone, analysts expect mall floor space to increase to 97.9m square feet in 2016 from 77.6msf in 2014. Many mall owners are looking to refinance their bank debts through offerings of structured bonds. Depending on the issuer and type of assets backing such securities, they bring cost savings of anywhere between 25bp and 125bp, besides giving them access to the surplus cash flow upfront. These asset-backed issues differ from global international CMBS offerings, where lenders securitise mortgages from several commercial properties through bankruptcy-remote special-purpose vehicles. Indian securitisation trades have to be done through pass-through certificates, but these are still mired with tax complications. India is also yet to clear corporate bankruptcy laws. Property-backed bonds have been followed with those backed against annuity payments, credit wraps or even bonds paying variable rates. In July, Pune-Solapur Expressways, a SPV with Atlantia and Tata Group company TRIL Roads as equal owners, raised Rs7.88bn from 14-year notes at a monthly coupon of 10.15%, a 40bp spread over the 9.75% base rate of arranger Kotak Mahindra Bank. After a year, the investors will have the option to quote a new spread every year until maturity, subject to the approval of the issuer, giving the benefit of a market-linked pricing to this locally Single A rated paper. Balancing act “In India, a CMBS is usually backed against a single property, but involves lease rentals from multiple tenants. So, to that extent, there is some diversification. Yet, concentration risk due to a single property exposure remains,” said Bhuskute of ICICI Pru. There are some distinct differences from the globally recognized CMBS format, notably around the role of the spo

There are two main challenges to Prime Minister Narendra Modi’s grand infrastructure ambitions. First, domestic banks, traditionally the biggest lenders to the infrastructure sector, are sitting on a mountain of bad debt and are in need of capital. Second, India’s homegrown infrastructure sponsors are also nursing damaged balance sheets, constraining their ability to develop new projects. The government is acting with a sense of urgency to address both, creating a significant opportunity for the international finance community. However, while greater roles for overseas investors and capital markets can help bridge the gap, the backdrop is challenging. The Modi administration, which has staked its reputation on the infrastructure “story”, needs to address the problems with non-performing assets at the domestic banks. Local rating agency ICRA estimates that there is a requirement for Additional Tier 1 funding of Rs400bn (US$6.2bn) between now and the end of the fiscal year to March 2016, while Indian banks will need as much as Rs2trn in Basel III-compliant capital over the next three years. The sense of urgency surrounding the need to kick-start domestic bank lending has led to the recent instigation of a seven-point plan aimed at transforming the country’s public-sector lenders. This includes establishing a bank board bureau, creating a capitalisation plan, reducing bad debt, limiting government oversight and rationalising corporate governance. Still, a real change may require greater foreign participation. “Much as is the case in say Thailand or Malaysia, Indian infrastructure has always been funded by local banks with international lenders cherry picking their projects and not really providing the critical mass that India’s infrastructure need requires,” said a Mumbai-based head of syndicated lending. The traditional focus on coal-fired power plants has contributed to an array of delayed projects as supply problems, price swings and broken off-take agreements have left sponsors high and dry. Given this backdrop, it is not surprising that renewable energy has become the nirvana of the Indian infrastructure story. Lead-in times for the construction of either a wind-farm or a solar plant are only around six to nine months versus around four years for a coal-fired power project and, given its relative infancy as a sector, the issue of leverage is not hanging over the renewable energy segment as it does over the traditional coal or gas-fired power sector. “In the traditional power production sector there are legacy problems with over-leverage and there were cancellations of coal allocations. The coal issue has been dealt with via a fresh round of auctions. As for the leverage issue, there was too much debt taken on and a lot of the projects couldn’t get up and running. Declining power prices also hurt the weaker players,” said Rakesh Garg, head of global finance for Barclays in India. “But the dynamic now is for the weaker players to get taken out by stronger counterparts. For example JSW Energy is acquiring power assets from stressed companies like Jaypee Group and Monnet Power and Adani Power acquired a stressed power asset from Lanco. This consolidation will enable the projects to complete the last mile.” In a recent report, Deutsche Bank estimates that, within the next seven years, India will become one of the biggest producers of renewable energy, with the growth momentum anchored in ambitious targets of Premier Modi. He is targeting wind-generated power of 100 gigawatts by 2022, from the current 22.5GW, while the country is aiming to generate the same power output through solar technology with a similar deadline. Still, the backdrop is challenging in light of the financial weakness of India’s power distribution companies and reluctance of local and international lenders to take the regulatory risks. Private-equity sponsors, small-scale promoters and blue-chip corporations, both domestic and foreign, dominate India’s renewabl

Will India have a proper working bankruptcy law in place soon? The country’s premier Narendra Modi certainly thinks so. At a technology summit in Bengaluru in the first week of October, Modi said his government was actively “working on a new bankruptcy code and a company law tribunal” intended to simplify the tax code, ease the process of doing business onshore, and deal with issues that often varied from state to state, such as how contracts were enforced and how companies were created and governed. This matters when you consider the underlying purpose of the pending law, which is to prop up and inject world-class levels of expertise, governance and purpose into an often-moribund domestic banking sector. By any measure, India’s lenders, barring a selection of standout cases in the private sector, such as Axis Bank and Kotak Mahindra Bank, are in a terrible muddle. Public-sector banks (PSBs) control around 75% of the lending industry. Typically, they are bloated (27 PSBs employ a total of more than 850,000 heavily unionised staff), less profitable than their private-sector peers, and wasteful in that regular injections of capital usually generate not gratitude, but calls for yet more state aid. Most look benevolently on clients, who overborrow to fund stalled industrial projects, typically in industries like power, steel, real estate and infrastructure, and then fail to repay debts. This process of rolling over or “evergreening” loans undermines the financial and economic health of the industry, as well as the country. Stressed assets made up around 11.1% of all lending across the banking sector as at end-March 2015, up from 10% a year ago, according to data from the Reserve Bank of India, though that level is far higher at many PSBs. Aditya Narain, equity strategist at Citi India, sees this as a “big challenge” as it hurts banks’ profitability, dilutes their capital base and dents their ability to lend. There are often stark disparities between private and public-sector lenders. In the second quarter of 2015, net interest income grew 18% at private lenders, but half that at PSBs. Kotak Institutional Equities Research notes in an August 4 report that lending grew 19% year on year in the three months to end-June at private-sector banks, but just 6% at PSBs. Total non-performing assets across the banking sector stood at US$39.3bn at end-March 2015, with the highest NPA ratios coming from United Bank of India (21.5%), Central Bank of India (21.3%) and Indian Overseas Bank (19.4%) – all PSBs. More than a third of all NPAs are related to longstanding loans extended to just 30 large state corporations, most of which are accustomed to securing cheap capital on a long-term basis. After decades of ignoring the problem, or throwing cash its way in the hope that it will simply disappear, the government has finally, under Modi, decided to act. In the past, said Firat Unlu, chief India economist at the Economist Intelligence Unit, PSBs were used “to fund unprofitable ventures, bogging them down when they should be funding a critical expansion of infrastructure”, creating a mountain of toxic loans that corroded the financial sector. Modi’s response was to pledge to put an end to what he described as “lazy banking”. In this context, Modi’s action is a mix of the reliable and the revolutionary. Over the four years to end-March 2019, Rs700bn (US$11bn) will be injected into underperforming state banks. Yet, this time, the recapitalisation will come with a twist. Some of the cash will be spent on ensuring that India’s lenders meet new Basel III bank capital targets. The hope is that the extra cash will act as a stimulus, creating six powerful and well-run PSBs capable of competing head-on with PSBs. In this context, those who see Modi as a private-sector zealot could not be more wrong: So far, India’s political leader has avoided the temptation to privatise any state lender, no matter how badly run. Nevertheless, few doubt he has the desire to b

By any measure, Indian banks are badly in need of more capital. Fitch Ratings has come up with an eye-popping estimate of US$140bn for all kinds of capital, while Standard Chartered sees the need for as much as US$53.4bn in Common Equity Tier 1. Indian banks have until 2019 to meet Basel III capital requirements in full. However, the capital shortage has been apparent for years and, to date, there has been little notable progress to remedy the situation. While banks around the world have taken drastic measures to reduce risk-weighted assets and issue various flavours of capital via the public markets, Indian lenders have stayed conspicuously behind. Bankers and analysts blame this partially on frequent managerial changes at some of these lenders, as well as worsening non-performing loan levels, but warn that concrete steps need to be taken over the next 12 months or the capital hole may become even larger. The Indian government has pledged to inject US$11bn over the next four years, but not many in the market believe this will be even close to enough. In September, the Reserve Bank of India designated only two lenders as domestically systemically important banks (DSIBs) in a move that analysts said only emphasised the scale of the problem. DSIBs are required to have higher capital buffers than smaller lenders. So, the fewer DSIBs there are in the country, the less capital is needed. “It’s hard to know where the equity capital will come from other than the government, other than for a few large public sector banks that have reasonable return metrics.” “The extent of the equity capital requirement is debatable, but these banks will still have challenges obtaining that capital,” said Pramod Shenoi, head of capital solutions DCM and FIG at Standard Chartered. “It’s hard to know where the equity capital will come from other than the government, other than for a few large public sector banks that have reasonable return metrics. However, the NPL situation is getting worse and the economy is not really moving, only compounding the difficulties for the public sector banks.” The bulk of the capital need is related to India’s public sector lenders, which account for 75% of the country’s banking assets. Private banks are already reasonably well capitalised. Of the public-sector banks, the smaller and less profitable lenders are seen as those facing the most trouble. Syndicate bankers say the larger institutions will be able to tap shareholders through rights issues or offerings of Additional Tier 1 or Tier 2 bonds, but smaller lenders will find these avenues difficult to tap. They see lower-tier pubic banks having to pay premiums as high as 100b, and, even then, still struggle to attract investors. Furthermore, if all banks try to access the capital market at the same time, there is a chance that financing will become even more expensive. On the equity side, Indian law states that public-sector banks must be at least 52% state owned, making share dilution impossible as many of these lenders hover around the threshold. As tapping capital markets will be difficult, analysts hope that either the government will pledge to inject more capital into the system or Indian banks will begin a long-overdue process of consolidation, with stronger lenders merging with weaker ones. After years of dithering, the recent deterioration in credit quality may spark some sense of urgency. NPLs at Indian banks hit 13% of total loans this year, according to a recent research note from the RBI. The figure has risen steadily over the last four years from just over 6% in 2011. For private banks, the ratio is a more reasonable 4%. Analysts point out that this presents the government and the banks with something of a Catch-22 situation. The NPL ratio is rising because of a number of factors, but primarily because a slowing economy is making it harder for companies to pay back debts. Although a faster-growing economy will improve the NPL situation as it will help stru

IDFC Bank, newly established as a full-scale lender on October 1, is taking on a crowded market. Besides India’s 27 state-owned and 20 private sector lenders, the Reserve Bank of India has also given in-principle approval to 11 applicants to set up payment banks, which can accept deposits and remittances, but will not lend. The regulator will also allow 10 microfinance institutions to convert into small finance banks. Rajiv Lall, managing director and CEO of newly established IDFC Bank, sees the changing landscape of Indian banking as more of an opportunity than a challenge. “For us, the opportunity starts from the starting point itself with our many years of experience in the corporate landscape,” he said. “There has been a flight to quality as everybody wants to lend to a handful of good companies. For us, more than making money or trying to lend to these big companies, the opportunity is in the SME segment.” “We have very deep relationships with corporate India, which go way beyond infra lending … Clearly, we have a large opportunity to diversify our revenue base from our existing clients and start to penetrate and serve their non-infrastructure businesses.” Having focused on infrastructure lending for almost 18 years as a non-banking financial company, the former Infrastructure Development Finance Corp won one of only two universal banking licences awarded in 2014, alongside microlender Bandhan Financial Services. The two are India’s first new banks in a decade. IDFC shareholders will be allotted one share of IDFC Bank for every share they hold such that IDFC will own 53% of the bank through a holding company and existing shareholders will control 47% directly. The holdco will also be the parent for IDFC’s other businesses, including the securities and asset management units and the Infrastructure Debt Fund. The lender will be listed separately on the stock exchanges in November. IDFC’s makeover into a universal bank, however, does come with some constraints. The RBI rules require a universal lender to have three businesses: commercial and wholesale banking; personal and business banking; and rural banking. Nearly 25% of the branches need to be in rural areas and around 40% of all lending should be to certain sectors, classified as priority areas. “Focus has to be all the three verticals because that is what the RBI’s universal licence requirements are, but, if you look at from the other side of the coin, we see a lot of opportunities,” said Lall. As of June, India had 120,000 bank branches to service a population of 1.2bn. At 10 branches per 100,000 people, it remains far behind the 35 in the US, according to Morningstar research analysts. IDFC Bank started operations with 23 branches and is growing fast. Analysts expect it to have 600 as of the 2020 financial year. In the next five years, IDFC Bank aims to have 15m corporate clients from the current 400. Between FY07 and FY14, total lending and deposits in the Indian banking sector increased at respective compounded annual growth rates of 20.7% and 18.7%, according to government data. Standard & Poor’s estimates India’s banking sector credit growth at 12%–13% in FY16. IDFC’s has expanded at a CAGR of 13% over the past three years. Lall expects the lender to grow at over 15% in the coming years, nearly twice the pace of the Indian economy. The bank will start with a Tier 1 capital in excess of 15% (from 22.6% of IDFC), enough to fund growth for the next 24 months at least, according to Lall. He said the lender would raise more capital before it would hit the regulatory requirements. Leveraging a legacy Commercial and wholesale banking will be at the heart of IDFC Bank’s operations and is likely to remain a key driver of growth as it will gain market share in other sectors. Lall foresees the share of term lending declining over time, but the share of working-capital lending and fee-based income increasing. In June, IDFC had a loan book of Rs533bn (US$8bn) spread acros

India has opened the door for companies to sell rupee bonds overseas in an attempt to attract new investors and lower the country’s cost of capital. Shrugging off its conservative image, the Reserve Bank of India relaxed rules to allow corporate borrowers to issue so-called Masala bonds in late September in a move seen as a measured step towards full currency convertibility. At least a dozen Indian companies, both state owned and private, plan to enter the market as early as the end of October or November, market sources say. “The Masala bond market is likely to be opened by investment grade or quasi-sovereign issuers. It will be good to have these as initial issuers as, in the beginning, not many investors will have the appetite to take credit risk along with liquidity and currency risks,” said Rakesh Garg, managing director of global finance for India at Barclays. “With appropriate FX management, investors can get very good US dollar returns. For long-term investors, the rupee is unlikely to depreciate higher than the interest differential and, hence, will generate positive return.” So far, the only Masala bond issuers have been two supranationals, the International Finance Corporation and the Asian Development Bank. IFC has issued around Rs106bn (US$1.6bn) of Masala bonds in tenors from three to 10 years, building a benchmark yield curve. IFC, the private-sector financing arm of the World Bank, wants to encourage emerging-market companies to borrow in their own currencies and is ready to support other issuers to encourage the Masala market to take off. “We are happy to offer credit enhancement to companies to access the global market,” said Keshav Gaur, director, treasury client solutions, IFC. “IFC can also be an anchor investor for a rated or unrated Masala bond offering as long as the end project meets our investment criteria.” Testing the waters Initial offerings are likely to be of moderate sizes to allow both issuers and investors to see how the market develops. However, “if the rupee is appreciating and Indian economy is doing well, people will pile into these offerings,” Garg said. As investors will bear the currency risk of Masala bonds, rules are more liberal than those governing external commercial borrowing (ECB), he points out. However, Masala bonds fall under the ECB framework applicable to applies to all offshore borrowings of Indian companies, meaning they will face limits to the total amounts they can borrow. Issuers will be able to raise up to US$750m through Masala bonds under the automatic route (and beyond the usual ECB limits). For further Masala offerings, prior approval from the RBI will be required. The RBI has allowed Indian lenders to access the new market as arrangers or underwriters of Masala bonds. They, however, are not allowed to be issuers. Indian banks will also be able to keep up to 5% only of an offering after six months of the issuance. They must also comply with the usual issuer-exposure rules. However, Masala issuers will enjoy more freedom in the use of proceeds and will be free from any pricing caps – a climb-down from the June draft proposal of a cap of 500bp over Indian government bonds. Under existing ECB rules, the price cap on dollar borrowings of three to five years is 350bp over six-month Libor, while that on borrowings of more than five years is 500bp over Libor. In late September, the RBI proposed a 50bp cut to the 350bp price cap, but a similar hike to the 550bp ceiling over Libor for long-term borrowings. Market players say freeing up the cap for Masala bonds will give more flexibility in price discovery and will widen the range of issuers able to target offshore investors. Some even expect the Masala market to encourage new issuers to come to the capital markets and invigorate India’s shallow domestic corporate bonds segment. Under the new RBI rules, Masala bonds must have a minimum tenor of five years. There are no end-use restrictions, except for a few limitations. For

India’s equity capital markets are set for the biggest year in a decade, with a boost from the comeback of IPOs and a string of mega stock offerings at a time when the rest of Asia is struggling to recover from the Chinese stock-market debacle. At the end of the third quarter, total ECM issuance stood at Rs1.2trn (US$18.5bn) from 104 transactions, according to Thomson Reuters data. The IPO market, in a deep slumber for the last couple of years, has sprung back to life. According to the Securities and Exchange Board of India, 29 companies have raised Rs48bn through IPOs so far in 2015, compared with Rs4.6bn from 11 floats in the same period last year. Listings that had been in the works for years, such as Adlabs, Inox Wind and VRL Logistics, finally managed to come to fruition. “The capex cycle will take another quarter or two to revive as various government initiatives to kick start the economy reach the ground level. We will see a spike in capital-raising activity once that happens,” “At the start of the year, the volume was expected to be around US$20bn–$25bn. Activity is likely to remain sustained in the fourth quarter and we expect to end the year at the bottom of that range,” said Arvind Vashistha, head of ECM origination at Citi India. India really stood out in the volume of secondary offerings, demonstrating its appeal even because global investors shunned most emerging markets as a result of the fall in the Chinese stock markets and expectations of US rate hikes. The government raised Rs16.8bn through an offer for sale of shares in Power Finance Corporation in July and Rs94bn from a similar disposal of stock in Indian Oil Corporation in August. In September, Indiabulls Housing Finance conducted a Rs40bn qualified institutional placement during a brief window of opportunity. Later in the month, after the Federal Reserve kept interest rates unchanged, Tata Steel placed a Rs12.5bn block in Tata Motors. Investors responded well to all these share offerings, although they were tightly priced at discounts of 2%–4%, and have traded well. High expectations At the beginning of the year, some bullish bankers had predicted that Indian ECM volume might even overtake that of China. However, this quickly proved overly optimistic and, in the first nine months, China’s ECM volume was way ahead at US$114bn, with the help of a first-half bonanza. “ECM transaction volumes are, perhaps, not as robust as we expected at the start of the year. Global market conditions have contributed to that, given the volatility issuers have had to deal with,” said Sanjeev Jha, head of capital markets (India) at Bank of America Merrill Lynch. In addition to global factors, India’s lower-than-expected economic growth may also have also kept down corporate funding requirements, resulting in weaker-than-projected follow-on offering volumes. Jha, however, thinks it is only a matter of time before activity starts to pick up. “Perhaps, the capex (capital expenditure) cycle will take another quarter or two to revive as various government initiatives to kick start the economy reach the ground level. We will see a spike in capital-raising activity once that happens,” he said. Modest IPOs Also, while activity has picked up, most IPOs are in the US$50m–$100m range, the largest to date being that of Coffee Day Enterprises for Rs11.5bn (US$177m). Others, such as Ortel Communications, Adlabs Entertainment and Prabhat Dairy, had to trim the sizes of their IPOs because of weak investor response. That, however, may be a healthy sign, says Biswajit Chatterjee, partner at Squire Patton Boggs, because it shows that even “mom and pop investors have become more careful”. Still, “some IPOs have done much better than expected even in volatile markets.” V Jayasankar, head of ECM at Kotak Investment Banking, says the typical IPO size will remain in the US$75m–$200m range due to the nature of the Indian companies wanting to raise money from the capital markets. A larger IPO currentl

India’s prime minister has been busy of late. Narendra Modi spent much of his first year in charge of the world’s largest democracy globetrotting, visiting industrial powerhouses like South Korea and Japan, while courting Sri Lanka and Myanmar, neighbouring states that have, in recent years, been sucked into China’s widening commercial orbit. The former teaboy who turned his home province of Gujarat into a manufacturing and technology hub has become something of an international political rock star. Manhattan ground to a halt when he visited New York last year, while nearly 20,000 showed up to hear him wax lyrical about India’s digital future at the S&P arena in Silicon Valley in September. In November, the leader of the Bharatiya Janata Party will speak to a 75,000-strong audience at London’s Wembley Stadium. Yet, political leaders are judged on their performances at home rather than overseas and here, at least so far , India’s premier has been found wanting. Elected last year after Indians ran out of patience with the dithering of the Congress Party and the chronic corruption that had pervaded a slowing economy, Modi promised the sort of real change consumers, jobseekers and entrepreneurs craved for – more jobs, greater growth, and plenty of reforms. All three were, and are, vital to the country’s future. On Modi’s arrival, major infrastructure projects had been bogged down for years due to arcane and restrictive land laws. Growth dipped below 7% for the third straight year in 2014, according to data from the World Bank. The working-age population will hit 1.15 billion mid-century, creating a demographic dividend that will either – depending on whether policymaking is soggy or sensible – cement India’s place at the top economic table, or lay the foundations for future social unrest. For now, top-line data suggests India is in a good place. In its latest World Economic Outlook published in October, the IMF tips economic growth to hit 7.3% this year, down from its previous forecast of 7.5%, but enough to warrant a thumbs-up from IMF managing director Christine Lagarde, who described India as a “bright spot” in the global economy. Barclays expects gross domestic product to hit 7.8%, the fastest pace since 2010, when it topped 10%. A year and a half ago, India was bracketed as one of the so-called “fragile five” countries deemed vulnerable to higher US interest rates. Yet, it escaped this group, as lower oil prices helped cut inflation and bring the fiscal deficit under control. India’s current account deficit fell to US$6.2bn in the second quarter of 2015, from US$31.8bn at its peak in the final three months of 2012. Still, none of this has been enough to dispel a sense of gloom that continues to shroud the world’s ninth-largest economy. Indeed, there is a lingering feeling that Modi is failing to deliver on his own pre-election promise of injecting more enterprise and efficiency into the economy, while slashing red tape and reducing the throttling power of the state. Some have even begun asking if he is indeed the “Great Reformer” of legend, or merely a high-functioning bureaucrat with a penchant for self promotion. Modi promised to change India for good and for better, yet many are starting to wonder what he has really accomplished. “Reforms are stalling in parliament and chances are that comprehensive reform packages will not be passed in the medium term.” Let us start with GDP. In most developing economies, a growth rate of 7%-plus will be cause for celebration. (The IMF in October also tipped 2016 GDP to come in at 7.5%). Yet, many had expected it to accelerate even faster this year, as India’s private-sector industrialists put their considerable cash reserves to use in new industrial and commercial projects. In an ideal world, notes London-based Capital Economics, India’s economy “could sustain GDP growth of 10% a year if it were to get everything right”. However, it adds that, with growth “still falling well short of