Global trust high over India; so are expectations
Three statements, made by three different people, at the three-day Advancing Asia: Investing for the Future conference in New Delhi, on Saturday, are indicative of both the direction the Indian economy is taking and the routes it must to adopt to hasten the process of movement. The first is Prime Minister Narendra Modi's comment that bigger public investments are needed to attract private participation since the latter remains weak. The second is Union Minister for Finance Arun Jaitley's commitment to stick to the fiscal deficit target. And the third is International Monetary Fund chief Christine lagarde's suggestion that central banks must provide support to the nation's economy through favourable monetary policies (read lower interest rates).
Taken together and individually, they come in the backdrop of the Indian economy's strong if not spectacular showing in the last two years and the fact that there is confidence globally that it is on the track to greater consolidation and growth levels. There cannot be a better moment than now for the reform measures the Modi Government needs to take or accelerate those already taken. It can, thus, more extensively indulge in public expenditure to boost growth and attract private attention, especially in infrastructure and the social sector, and yet keep a check on fiscal deficit which the Finance Minister has committed to and RBI Governor Raghuram Rajan is keen on (Rajan commented that he was “comforted” by the Government's decision to stick to the target).
lagarde's advice was directed at Rajan without name, since the belief in some sections of industry is that he has been too conservative when it comes to easing interest rates. That may not be a fair assumption, given that the Governor's control has helped keep inflationary pressures under check. And, with the Government determined to honour this fiscal deficit and the coming fiscal year's target, Rajan may well do what industry hopes: Announce a significant cut in interest rates during the April monetary policy review meet. With the Government and the RBI on the same page regarding the best ways the economy should develop, there is no reason to doubt a rejuvenated Indian economy taking on challenges and converting them into opportunities.
One of the challenges that has presented itself as an opportunity, and which the Prime Minister did not miss to mention, is that of targeted subsidies. The plan is to extend the Direct Benefit Transfer (which is now for cooking gas) to food, kerosene and fertilisers. Interestingly, Economic Affairs Secretary Shaktikanta Das hinted on the sidelines of the event that “the idea is to roll it (fertiliser subsidy through DBT) out… it will be done slowly and in a calibrated manner”. This plan comes on the heels of the lok Sabha passing the Aadhar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill. The realisation of the Prime Minister's dream of “reform to transform” will significantly depend on this pillar of reform. India today may be one of the few bright spots in the global economy but it will not want to be the only one. If global economic indicators are strong, it benefits domestically. Nevertheless, Indian business at least has a huge domestic captive market to fall back upon.