India's Economic Power Is Ready To Be Flexed Under New Prime Minister Narendra Modi

Indian PM Narendra Modi on the campaign trail earlier this year. Photo by Kevin Frayer/Getty Images.
Andrew Stevens.

It’s hard to escape the buzz in India at the moment. A new leader with a new vision and the political muscle to get results.

Narendra Modi won a sweeping election victory six months ago on a campaign of economic change. Under his predecessor Manmohan Singh’s fractious coalition government, the economy was stagnating and public frustration was rising.

The timing of the election could not have been better for Modi, a former chief minister with a record of pro-growth and pro-business policies in his home state of Gujarat, meeting an electorate hungry for change and new economic opportunities.

But at the World Economic Forum India Summit in New Delhi in early November the calls for more action and fewer words were becoming louder.

Indians, especially Indian businesses, are waiting for the really big reforms, which they say will truly kick-start the economy.

To be sure Modi has been busy. He has started trying to make India’s powerful government bureaucracy more accountable and more efficient, which in itself is a big move. Stories of India’s civil servants working four or five hours a day including lunch are legion.

He has cut the diesel fuel subsidy, a politically sensitive move but one which has been well received, partly at least because the blow has been softened by the falling price of oil. He has launched a “Make in India” campaign with the aim of creating 100 million new jobs by 2022, and he has also launched a campaign to encourage Indians to clean up the environment.

On top of that, inflation is falling and growth is moving in the right direction. The World Bank says India’s economy will expand 5.6% this year after two years of sub-5% growth.

Put all that together, combine it with talk of change and reform, and investors have been flocking back to India. The benchmark BSE Sensitive Index is up more than 30%, making it the best performing major market in the world this year.

But the momentum that Modi has established now needs heavyweight reforms, say many analysts and business leaders.

The bewildering array of local, state and Federal taxes has to be streamlined. Replacing that with a national goods and services tax would provide a big boost to business which now struggles under the weight of so many different taxes.

Removing caps and obstacles on foreign investment, reforming labour laws which make it easier for small and medium-sized companies to hire and fire, and further cuts to subsidies are all needed, say business leaders.

Arnand Mahindra, chairman of one of India’s biggest auto manufacturers, says the honeymoon period is over. He told me at the WEF that business wants to see more big reforms rolled out within a year if the government is serious about changing the course of India’s economy. Small business operators hope for an easier tax regime and a concerted attempt to stamp out corruption.

The government itself remains upbeat. Finance Minister Arun Jaitley told us in an interview that the government will continue to roll out reforms. It’s not going to be one “big bang” but a series of changes which will lead to growth of between 7%-9% in the next three years.

The impeccably connected Jaitley, a former successful corporate lawyer and now right-hand man to Modi, says he knows the international investment community is watching and promises “we won’t let them down”.

“We need to open the door wide open so that people can come in. We need to ensure that there is stability of policy, there is stability of taxation policy, and therefore we have to disagree with a lot of things that happened in the past,” he said.

“We have to have a world class infrastructure. We have to provide avenues where people can do business and make profit, because nobody is coming here for philanthropy, people are coming to do business in India. And then, generate employment in India.”

The clock is ticking.

* Andrew Stevens is a CNN anchor/correspondent based in Hong Kong. You can follow him on Twitter: @andrewcnn

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