Foreign investors put their faith in Modi regime
Two news reports this week point to a definite upturn in the economy under the leadership of Prime Minister Narendra Modi: First, India received more foreign investment than China and the US between January and June this year, and second, the country moved up 16 places on the global competitiveness ranking put together by the World Economic Forum. In the first case, the Financial Times calculated that India received an estimated $31 billion in greenfield investments, compared to China's $28 billion and the US's $27 billion. Notably, India's improved performance comes at time when 97 of the other 154 emerging economies registered declines in capital expenditure on greenfield investment projects in the first six months of this year compared with the same time period last year. This is a direct reflection of the Modi administration’s business-friendly image. Similarly, in the second case as well, the dramatic improvement in India's ranking — from last year's 71 to this year's 55 out of 140 — has been largely attributed to the Modi Government's visible commitment to improving India's business climate. Its efforts to stabilise the tax regime and streamline regulatory processes, to name just a few initiatives, are clearly paying off.
These positive indicators come at a time when the Modi Goverment has been receiving brickbats from certain quarters for not doing enough to change ground realities. Even though foreign investors have, generally speaking, been optimistic about a Modi-led economy and, moreso, after the BJP-led NDA secured a majority vote in the 2014 lok Sabha election, many had wondered if the Prime Minister would actually be able to deliver on his promise of good governance and large-scale reforms, especially as he faced a truculent Opposition that seemed determined to stonewall his every effort. By the end of his first year in office, complaints of failed promises were getting louder and the Opposition had prepared a template response of disdain for every foreign trip he undertook. The Prime Minister's ability to talk up the potential of the country on foreign shores was routinely dismissed as a public relations stunt, with questions also being raised about tax-payer money being ‘wasted' abroad. This week's reports, prepared by reputed international agencies, should help counter such unproductive criticism.
At the same time, the Reserve Bank of India's decision to slash the repo rate by 50 basis points should also give the economy a reason to cheer. For one, investments in large infrastructure projects should get a push. This sector has been lagging over the last couple of years as institutional funding has almost dried up. Hopefully, infrastructure development will now begin on a war footing, for that is crucial to scripting a significant economic turnaround. Additionally, home loans and corporate loans should also become cheaper, and it is hoped that the realty and auto sectors will also pick up, giving an overall boost to the economy. However, all said and done, let there be no doubt that while these indicators of optimism and hope are welcome, the Government still has a long way to in delivering the next generation of big bang reforms that will truly revolutionise the Indian economy.