Prime Minister Narendra Modi remains popular and reforms have not run out of steam, says Aberdeen Asset Management. In its latest report titled “India: The Giant Awakens”, Aberdeen has credited PM Modi for finding solutions to multiple challenges, sowing seeds for structural changes and introducing reforms that may not be “big-bang”, but are definitely long-term in nature. “A common perception in India is that the reform process is stalling and Modi’s popularity is under pressure. This is frequently aired in the general media but it mischaracterises the reality. Our trip to India reinforced our view that the seeds of significant structural changes have been sown,” Aberdeen says. “Contrary to some reports, Modi remains popular and reforms have not run out of steam. If one looks closely, changes are taking place everywhere. Indeed, reforms were always intended to be long-term in nature, rather than big bang,” the report adds.
WATCH: Why Aberdeen Is Bullish On Modi And India
“India is in far better shape than in 1991 and reforms have been implemented out of design, rather than need,” Aberdeen notes. In a report that highlights the Modi government’s achievements on multiple fronts, while also looking at future prospects and challenges, Aberdeen says, “India has found solutions to the challenges it has faced and emerged better for it. Indians are, if nothing else, creative and persistent. These attributes will be needed now more than ever.” “For a country that was one of the world’s pre-eminent superpowers, the Hindu tradition of viewing history as a series of repeating cycles is rather apt….All eyes will be on India as the giant awakens,” it says expressing optimism. We take a look at 10 positives for India as listed out by Aberdeen:
1) Innovative solutions: Aberdeen credits the Modi government for transforming India’s political and economic landscape in less than two years. “Almost every week, we see seemingly intractable problems overcome by ever more innovative solutions. In particular, the shifting of power to the states has proven to be the most politically expedient way to resolve the longstanding issue of land reform,” it says.
2) Infrastructure: Through the government’s initiatives, vital infrastructure is being built, business is becoming easier to do and corruption and bureaucracy are in decline. Indian companies will soon be able to access the global market for goods and services. India’s many young entrepreneurs will have the opportunity and incentives to realise their aspirations.
3) Positive influence: Several factors illustrate Modi’s positive influence on the economy, says the report. “India has now experienced two back-to-back deficient monsoons (defined as less than 90% of long-term average rainfall) for the first time since the mid-1980s and only the fourth time in over a century. Despite this, food inflation has remained relatively stable. In part, this has been helped by government measures to deter hoarding, ensure timely distribution of rice and wheat, moderate minimum support price increases and deter exports (or encourage imports) of key food products like onions,” it explains.
4) Efficiency: Stating that government efficiency is improving considerably, the report notes that the number of stalled projects is declining. Environmental clearances for projects have also been fast-tracked, it adds.
5) FDI: Among the key drivers of the transformations taking place has been an opening up of the Indian economy to greater FDI, feels Aberdeen. Notably, the Modi government has raised the limit on FDI in the defence sector from 26% to 49% and allowed over 50% FDI in the nation’s railway sector for the first time. “The construction, agriculture and banking sectors are also set to benefit from greater FDI flows. Given government policies to open up key sectors like insurance and defence, there is scope for a sustained improvement in FDI flows,” it adds.
6) Digital India: According to the report, ‘Digital India’ is perhaps the most radical of Modi’s reforms. “The government’s is aim to transform the country into a digitally empowered knowledge economy and to boost standards of governance of citizens through better engagement with the government. ‘Digital India’ is one of many reforms that is helping make doing business easier in India.” With transactions in India being painfully slow and bureaucratic, this is one reform that has been long overdue. “Widescale government and corporate corruption has been for too long a blight on the efficient and equitable use of funds. Modi is tackling these problems head on,” Aberdeen says.
7) Tax reforms: GST is seen as a key reform. “A key element of the reforms is the replacement of numerous complicated inter-state taxes with a single uniform goods and sales tax (GST),” it says adding that a simplified tax regime is expected to improve compliance and revenue collections, as well as allowing the free flow of goods and services between states.
8) Ease of doing business: Doing business in India is harder than it should be, says the research report. “According to the World Bank, it takes 28 days to start a business in India. This compares with 19 days in Pakistan, 11 in Japan, four in Korea and just three in Australia. The government has reacted by waging war on red tape. Companies are starting to report that high-level corruption has virtually disappeared – a huge development,” lauds the report.
It also adds that bankruptcy law is a notable achievement of the Modi government. The new code will help clear up bank balance sheets to allow lending for more productive purposes, it says.
9) Startups: Abderdeen is of the view that the government’s ‘Start-Up India, Stand-Up India’ campaign is the first of its kind. It bridges the gap between new start-ups and venture capital and angel investors and promises to mobilise India’s talented youth to set up new and innovative businesses, says the report.
10) Raghuram Rajan impact: The former International Monetary Fund (IMF) Chief Economist, turned economics professor, turned central banker has been instrumental in creating the economic conditions for ‘Modinomics’ to be realised, the report notes. “He has achieved a great deal over the last three years, establishing an inflation-targeting monetary framework and pushing hard for the establishment of a monetary policy committee (MPC), expected to be in place by the third quarter of this year,” it elaborates.
Even as Rajan’s term ends in September, Aberdeen is still optimistic. “Whether now or in two years’ time, India ultimately would have had to continue on its reform path without Rajan. It continues to be in a strong position to do that,” it says.
