Favorable Economic Winds Help India’s Economy Surge

Favorable Economic Winds Help India’s Economy Surge

Of the BRIC economies, Brazil is struggling as commodity prices fall, Russia is headed toward recession due to weak oil revenues and sanctions from Western nations, while China is slowing down. However, in India the stock market and rupee are surging; multinational companies are looking to start new operations or expand their current ones; foreign investment rules have been relaxed for insurers, military contractors, and real estate companies; and a broad tax overhaul is underway. Whether India’s momentum is sustainable or short-lived depends on whether Prime Minister Modi can push through deeper reforms.

The New York Times quotes Shailesh V. Haribhakti, the chairman of MentorCap Management, a boutique investment bank in Mumbai as saying, “All the circumstances have come together to make manufacturing and growth happen.”

With prices of crude halved, fuel costs have dropped and along with it, transport expenses and inflation. The country’s chronic budget deficits are narrowing. “We’ve got essentially a $50 billion gift for the economy,” said Raghuram G. Rajan, the governor of the Reserve Bank of India.

Modi has many economic issues on his plate that he needs to attend to: expanding the private sector’s role in coal mining, a government-dominated industry; accelerating infrastructure projects; replacing state taxes on goods that cross state borders with a national tax; and acting on bills introducing longer term reforms.

Jayant Sinha, the minister of state for finance said that the government had begun making significant changes and that “there are a lot of inherited, legacy issues” they have had to work through such as budget deficits and persistent inflation. “You have to give us a little bit of time for every business to feel the difference,” he said.


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