Investment Outlook , Published Jan 18, 2018
Structural reforms aren’t easy, but they do deliver growth. There are three priorities: structural initiatives, fiscal responsibility and investment stimulus. By pursuing all three, the government has ensured additional multiplier growth benefits will come forth.
The pursuit of the three aforementioned policies creates a resilience to macro-economic shocks, raises economic growth and reduces unemployment. There is a lag however, on the materialization of growth benefits and in the short term, there is substantial pain and resistance to change.
Aadhaar, Jan Dhan, demonetisation, GST, and soon benami, are working synchronously to create a new, inclusive infrastructure. Central to the reforms is the move away from cash, towards electronic payments, away from black money to white, from unorganized to organised and towards a national biometric identification based financial system.
Following structural reform, the government has come through with the other two legs: an infrastructure stimulus, and banking recapitalisation. The Modi government has also strengthened its economic and legal infrastructure with real estate and bankruptcy legislation, applied corporate governance mandates for the PSE sector and fiscal transparency. The farm loan waivers and crop insurance programs have reduced regulatory bureaucracy and helped India jump 30 spots in the ease of doing business.
Though it isn’t easy, structural reform works. The economic literature is abundantly clear on the impact of structural reforms. Reforming countries experience a growth acceleration in the medium term, following short term pain. Reforms in banking significantly raise growth and make economies attractive for FDI.
Recent developments have witnessed a number of brokerage houses coming forward with revised upgrades to India’s 2018 growth. We expect India to be the fastest growing large economy in the world in 2018.
Investment Outlook 2018