RSM Global

Guest post: Indian government reforms will lead to sustainable growth...

India continues to make great strides as an economy. Policy decisions made by the Government will increasingly reverberate around the world.

I am delighted to share with you the first post from Suresh Surana, founder of RSM Astute Consulting Group in India. Dr Surana is a leading commentator in India, and I hope to include more of his insights in the blog over the coming years...

India has successfully moved from a position of developing economy to emerging economy on the world map. This is a responsible position, considering the rise and fall of India’s growth rate has an impact on global growth and confidence. The same is also carefully observed by India’s trade partners and policy makers around the globe.

India’s growth through to 2013 is projected to be around 7.5%. This medium-term growth outlook is positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy.

There have been some questions about the sustainability of this growth, which is certainly increasing the need for a solid programme of structural economic and fiscal reforms. Reforms will also go some way to repair investor confidence which has been ebbing away of recent owing to perceived wide spread corruption, increase in cost of finance and, of course, a historical lack of progress on economic reforms.

There have been a number of small reforms in the area of infrastructure, such as the extension of the viability gap funding mechanism to support public-private partnerships, doubling of the amount to be raised through tax-free bonds and wider use of external commercial borrowings in sectors such as roads, power and civil aviation. Measures like allowing qualified foreign investors in the corporate bond market and allowance of venture capital fund investment to all sectors as opposed to restricting this to specified nine sectors as in the past will also have a positive impact on some companies.

There are some structural fiscal reforms planned in the Finance Budget 2012 worth noting:

- Direct Tax Code (DTC) The DTC consolidates and integrates all direct tax laws and replaces both the Income-tax Act, 1961 and the Wealth-tax Act, 1957 by a single legislation. The Government seeks to provide a modern tax code in step with the needs of a fast growing economy. This would ensure ease of usage by simplification of language.

- Goods and Services Tax (GST) India has a number of indirect taxes with multiple cascading effects; the GST is aimed at consolidating all indirect taxes for providing ease of performing business in India.

- Foreign Direct Investment norms It is expected that the government will push its efforts to pursue opening up the multi-brand retail sector for foreign investors. Also, it envisages increasing foreign participation in the aviation and power industry.

- Thrust on infrastructure The drive on improving infrastructure facilities in India has been further strengthened. The Budget spending for infrastructure is aimed at INR 600 billion for the twelfth five year plan beginning from 1st April 2012.

- Capital Market Various steps are proposed to be taken for deepening the reforms in the Capital markets, by allowing foreign retail investors to access Indian Bond Market.

There is no doubt that over the long term the Indian economy will continue to grow. How it grows is very important as to be globally competitive, rather than just create a “large market”, India needs to develop into a world class economy. To deliver this the government will need to maintain a firm programme of structural reforms which can constantly adapt the economy to compete in the top tier.

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Jean M Stephens
Chief Executive Officer

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