RSM Global

Mr. Narendra Modi and India's economic outlook

According to recent research by Reuters, ‘India's economy will likely grow at its fastest pace in two years in the current fiscal year, as Prime Minister Narendra Modi implements reforms to attract investment’. Now, nearly 200 days into Mr. Modi’s tenure as Prime Minister, we asked Dr Suresh Surana, Founder of India member firm RSM Astute Consulting, for his perspective on India’s economic outlook.

Q: What are your views on India’s growth rate over the coming year?

Here at RSM Astute Consulting, we believe that India will see an accelerated growth rate, rising from 5.7% to 7% next year. The elections in May have given the country a strong, visionary national leadership headed by Mr. Narendra Modi with a clear majority, whose pro-growth reforms will do a lot to attract foreign and domestic investment. These include the Labour Law reforms and the landmark “Make in India” scheme, which aims to persuade both foreign and Indian companies to invest in India, and boost both the manufacturing industry and flagging exports.

India’s industry has already started experiencing the positive impact from these reforms as a result of the impetus in developing infrastructure, technological advancement through leveraging India’s IT capabilities, skills development, improvement in the tax administration, and decongesting labour regulations. It is expected that the full impact of these initiatives will be realised in the next 12 months.

There is no doubt that the slowdown in the other BRIC markets has improved India’s relative economic positioning. Oil constitutes 39.5% of total imports for India and the current trend towards lower oil and commodity prices has reduced India’s trade deficit and rate of inflation. These measures, combined with the strategic reforms improving the ease of doing business in India, can increase the annual growth rate to 7-8% over the next five years.

Q: Enthusiasm for these reforms has built steadily since the beginning of 2014. How has this impacted the economy?

Mr. Modi received a positive welcome from the global business community when he took office in May, and has been named winner of TIME magazine readers 'Person of the Year' 2014, securing more than 16% of the votes cast. This change in political leadership and focus has been reflected in a renewed global optimism in India as an investment destination. As a result of this, the Indian stock market has been hitting record levels (November) and there is a significant revival of the investment cycle and reduction in inflation. The increase in grass root level economic activity is not yet evident but will be visible in the near future.

Q: What are your thoughts on encouraging business in India?

The key aspects that make India an attractive destination for investment are:

  • Size of the economy (being the third largest economy globally) led by strong domestic demand (80% of GDP)
  • Favorable demographics due to a young population and highly skilled workforce
  • Strong democratic and judicial system

However, there are still key challenges which discourage businesses from settling in the country:

  • Highly bureaucratic and opaque regulations which need to be streamlined to improve ease of doing business
  • Infrastructural constraints such as power, roads and transport system
  • Improving global competitiveness of Indian businesses

At RSM Astute Consulting we firmly believe greater clarity and efficiency in these procedures would make it easier to do business in India and ensure the growth of the manufacturing and service sectors.

Q: How do you see the outlook both for India and for Narendra Modi over the coming months and years?

We see the outlook for India and the present leadership as extremely positive and exciting. Undoubtedly, this will require reorientation and digitisation of government bureaucracy, creating a regulatory framework which can facilitate building globally competitive businesses, and employment generation. The measures to improve infrastructure, reform the tax regime and liberalise foreign investments will need to be translated into action.

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