When Narendra Modi became India’s 15th Prime Minister in May 2014, he had a heavy mantle to take on.
The country experienced decade-low GDP growth in 2013 and Heritage’s Index of Economic Freedom gave India poor scores for business freedom, corruption, and various other issues which affect businesses.
International relations with the business community were also heavily damaged when the previous government, led by Manmohan Singh, hit Western telecoms giant Vodafone with a $2.5 billion (£1.6 billion) retrospective tax bill.
It put fear in the hearts of many Western corporates with subsidiaries in India because it symbolised how they could be potentially blindsided by the government for crippling amounts of cash.
But one of the country’s most prominent CEOs at one of the largest companies in the country, Anuj Puri, told Business Insider that during a secret dinner during the World Economic Forum in Davos, Switzerland last week, a strong exchange of words between the country’s finance minister Arun Jaitley and the leader of the opposition summed up how India is at a crossroads right now when it comes to regaining the trust of international businesses.
“This year there is a much better perspective over India but people are still sceptical in the business community because the previous government regime did lots of damage to the economy,” said Puri, Chairman & Country Head, of JLL India (formerly Jones Lang LaSalle).
JLL is one of the world’s leading and largest real estate and investment management companies with $6.2 billion in market capitalisation. Puri also oversees a team of over 8000+ employees across 11 cities in India.
“They moved one step forward and then two steps [backwards] and the retrospective taxation of Vodafone made the international community mistrust India for business. The mood is sombre at a global level but India has started to gain back some momentum of trust with this government.”
“I was at a dinner with only 4 or 5 of us last night (Friday January 22) and the current finance minister of India was being told by the leader of the opposition [Puri did not specify the name] to ‘not miss the bus’ when it comes to the country’s economy and getting more foreign business into India. Our current finance minister told him that we are fortunate to even bring India to the bus stop because the previous government wasn’t anywhere near.”
“He added that this current government has enabled the first step to even get to the bus stop while the previous government lost the opportunity to even get onto to bus but now, the government is trying to push through reforms of liberalisation, investment in human capital and rebuild trust in the international community. It is also looking to nurture entrepreneurs. ‘Yes we haven’t reached the destination but we made the bus stop,’ said the current finance minister.”
India’s economy has steadily grown from those record lows in 2013. Trading Economics noted (emphasis ours):
“Indian economy expanded 7.4% year-on-year in the three months to September of 2015, following an upwardly revised 7.1% expansion in the second quarter. Figures came better than market expectations of a 7.3% increase, boosted by financial, real estate and insurance activities and manufacturing.”
It’s hardly surprising because Modi’s government, within two months of coming to power, eased foreign direct investment caps. Then in August 2014, the government launched a financial inclusion plan called “Pradhan Mantri Jan Dhan Yojana,” which sought to make sure every home had access to a bank account. That’s great news for the economy as more people are able to buy and sell things.
A month after that, Modi’s government then launched the “Make in India” initiative to get multinational and domestic companies to establish manufacturing bases into the country.
Most importantly, Modi’s government tried to push through the uniformed Goods and Services Tax (GST) bill to deal with problems in the country’s tax system, including indirect tax.
Indirect tax is when the Indian government collects taxes from an intermediary such as a manufacturer or retailer. It’s pretty complicated but the current government led by Modi is trying to get this changed and more streamlined by introducing a uniformed GST bill. There are 29 states in India and 29 different tax rates for businesses.
But this is where Puri sees the issues in progress and what was symbolised by the dinner he attended in Davos last week.
Basically, the current government is trying to push forward heaps of reforms that will get India more favourable for Western investors but they can eventually be blocked if the opposition doesn’t like it.
“The current government still does not have a majority, so this means key reforms can still be blocked. For example, this government is trying to push through a more simple tax scheme that stops the retrospective tax regime like what happened with Vodafone but this was blocked. The government is also trying to put through the GST which hopes to unify tax which makes things easier for foreign businesses to do business in India,” he said to Business Insider.
“I would say I think the trust is evolving but the trust is not complete.”