India’s Blueprint for Success
Indian Prime Minister Narendra Modi recently addressed an ASEAN Business Summit. He acknowledged and praised the progress achieved by the ten ASEAN members and touted India’s economic reforms and growth.
“I have been saying that the twenty-first century belongs to Asia,” said Modi. “I say this because of the track record of the ASEAN countries. Together, ASEAN’s ten member countries form an economic powerhouse.”
When Modi’s government took office 18 months ago, the Indian economy faced serious challenges, the prime minister acknowledged. “A high fiscal deficit, a high current account deficit, a large number of stalled infrastructure projects and persistent inflation were among them.
While it was clear that reforms were needed, Modi steered India’s policies on a path of reform to transform. “In short, reform is not an end in itself,” he explained.
The results have been significant: GDP growth is up and inflation is down; foreign investment is up and the current account deficit is down; tax revenues are up and interest rates are down; the fiscal deficit is down and the rupee is stable.
“This success is the result of a series of concerted policies,” said Modi. “We have embarked on a course of fiscal consolidation. We have entered, for the first time, into a monetary framework agreement with the Reserve Bank to curb inflation.”
India has undertaken major improvements in the transportation sector. “Our major ports witnessed a 4.65-percent growth in traffic and an 11.2 percent increase in operating income, in 2014-2015 despite a global contraction in trade volume,” Modi said. “The pace of award of new highway works has increased from nine kilometers per day in 2013-2014 to 23 currently. These will have large multiplier effects throughout the economy.”
By cutting unproductive government spending, India has been able to greatly increased capital investment by the public sector. “To further augment such investments, we are encouraging the PPP [public-private partnership] model,” said Modi. “We are also setting up National Investment and Infrastructure Fund which will help us leverage public investments. We are also coming up with Tax Free Infrastructure Bonds with a view to broaden the corporate bond market and to provide long term finance for infrastructure.”
As a result, foreign investment is up 40 percent. India has also jumped 16 places on the World Economic Forum’s global competitive index after five years of decline.
“We have allowed and enhanced foreign direct investment levels in key sectors including insurance, defense, and railways,” said Modi. “We have also rationalized FDI policies in many sectors, including construction, plantation, and medical devices. We have greatly liberalized the licensing regime. To give one example, we have taken out almost 60 percent of defense items out of the licensing process.”