Indeed, our distinguished panel of experts spoke in glowing terms about India’s path to sustainable growth. While panellists acknowledged some of the challenges, they neatly put them into an overall positive context and they delivered a broadly upbeat outlook.
The macroeconomic data certainly stacks up on a two to three-year view as the reform process continues.
The government is pushing ahead with a spectrum of new measures, such as the much-vaunted goods and services tax that will add significantly to the fiscal take; the digitisation of the domestic economy that is helping support inclusion; and the democratisation of access to the banking sector. At the same time it is pushing ahead with significant developments in infrastructure across power, roads, railways, mining and irrigation, the electrification of rural villages, as well as a new bankruptcy resolution framework and dealing with bank NPLs while reforming capital markets.
And at a time when private-sector investment has not yet picked up, the public sector is doing a lot of the heavy lifting. It is important to mention that the political accommodation between the federal government and the states has a positive disposition.
The realisation that improved political governance in India’s sprawling democracy is a better path to growth than short-term politically expedient measures has definitely dawned, giving the country some tremendous opportunities to effect change.
On challenges, one issue to watch out for is India’s debt burden. For its rating class, India is running well above the average debt-to-GDP ratio. This, and bad assets in the banking sector—which in fairness are being tackled – will take time to deal with. Indian corporates are highly leveraged (although there are signs that this too is being dealt with) and the banking sector remains somewhat constrained in its ability to lend. These could become pressure points.
While progress across so many fronts is undeniable, India continues to need to reduce administrative bottlenecks that act as a retardant to growth. And the country is far too low in the ease of doing business rankings, even if again some progress has been made.
One difficulty of having so many reforms and changes coming thick and fast is maintaining a path to execution. The government needs to keep a razor-sharp and hard-line focus on ensuring that the steps it is taking aren’t undermined by delays. Reforms need to move quickly from formulation and approval to implementation and operation.
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