World Economy

Reforms Boost India Growth

Reforms Boost India GrowthReforms Boost India Growth

In an environment where economic growth is modest, India today stands as a bright spot among the global economies.

The International Monetary Fund in its report has projected India’s growth for 2015 at 7.3%, and rising to 7.5% in 2016. In its report dated Nov. 12, 2015, the IMF said that while emerging economy growth remains fragile and could be derailed in an environment of declining commodity prices, reduced capital flows, and higher financial market volatility, India’s growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices.

Foreign direct investment flows during the 2014-2015 reached $44 billion. FDI has also for the first time in seven years exceeded the current account deficit. The government’s continued push towards FDI liberalization will continue to aid FDI flows.

The Financial Times of London in its ranking of the top destinations for greenfield investment (measured by estimated capital expenditure) in the first half of 2015 shows India at number one, having attracted roughly $31 billion, $3 billion more than China and $4 billion more than the US.

  Ease of Doing Business

Administrative reforms, simplification of approval processes, including online project approval and easier environmental clearance procedures, are expected to improve business sentiment and the ease of doing business in India. The Project Monitoring Group set up under the cabinet is reviewing a total of 704 projects worth $451 billion, which have not received approvals because of hurdles like lack of fuel, green clearances and land acquisition with investments. To date the PMG has cleared a total of 411 projects entailing investments of $253 billion. The government has set an ambitious deadline of 2016 for implementing the Goods and Services Tax. A clear cut road map for lowering corporate tax from 30% to 25% over the next four years has been laid down.

  Easing FDI Norms

Medium-term growth prospects have also improved following recent policy initiatives towards unlocking coal and other mining activity, liberalization of FDI limits (100% in railways, 49% in insurance, and 49% in defense with the caveat that FDI in defense could go up to 100% with the control vested in the hands of the Indian JV partner and approval be secured from the government) and a renewed thrust on public investment in infrastructure, which would help to improve the investment climate. To boost the investment environment in the country, the government on Nov. 10, 2015 further eased FDI norms across 15 sectors.

Some of the new FDI norms include: composite FDI cap in the banking sector has been raised to 74%, minimum investment commitment and floor area stipulation for FDI in construction has been done away with, FDI limit in news and current affairs TV channels and FM radio has been raised to 49% from 26%, FDI limit in teleports, direct-to-home, digital cable networks, mobile TV has been raised from 74% to 100%; FDI of up to 49% under automatic route is now allowed in regional air transport services; FDI of up to 49% is allowed in the defense sector under the automatic route and if in excess of 49% will be considered by the Foreign Investment Promotion Board.

  Ranking Raised

As a result of the above measures, India has moved up 16 positions to rank 55th on a global index of the world’s most competitive economies compiled by the World Economic Forum.

The jump in India’s position underlines the country’s recent economic recovery, improvement in the competitiveness of the country’s institutions and its macroeconomic environment. According to the Baseline Profitability Index of the Foreign Policy Journal, India has recently been ranked No. 1 among 110 countries making it the world’s topmost investment destination.

The World Bank now ranks India at 130 out of 189 countries on the ease of doing business. That is up 12 places from its original ranking last year and four places from its rank on a revised list (based on a new methodology).

India is ranked 8th in terms of protecting minority investors, 42nd in getting credit, but scores poorly in dealing with construction permit with a rank of 183 out of 189 countries. Enforcing contract (rank 178), paying taxes (rank 157), resolving insolvency (rank 136) are other areas where India ranks poorly.

Moody’s ratings also revised India’s sovereign rating outlook to “positive” from “stable”.