As the Modi Government completes three years at the helm, the good news from the economy is that it has decisively turned the corner. The country is posting strong growth numbers, inflation is down, and policies are in place to further unlock the potential of the Indian economy.
Even as the global economy has remained subdued, India has grown at an average pace of 7.4% during the last three years. Several policy measures taken recently have further raised the outlook for growth, and GDP is likely to grow at around 8.0% in the current year if the monsoons are good, as predicted by the meteorological department.
At the time the Government came to power in May 2014, new investments had come to a standstill due to policy uncertainties on many fronts. The Government had to take up the onerous task of clearing the backlog of projects, putting in place more transparent policy frameworks, and re-igniting investor sentiment.
After the recent policy initiative to help banks get rid of their non-performing assets, we can expect to see a revival in investments soon. Foreign investors are already increasing their presence in India. Domestic investors, who were holding back due to subdued demand, are now ready to start investing.
Several sectors are experiencing a revival in domestic and external demand. India’s exports have turned positive and have witnessed double-digit growth since February this year. On the domestic front, the economy has normalized post the demonetization drive, and domestic demand is rising rapidly in consumer- facing sectors. Given that rural incomes are a driving factor for consumer demand in India, a good monsoon last year is having an impact in pushing sales of consumer durables and non-durables. Tractor sales have been rising rapidly over the last few months.
The Government is doing its bit by raising public investment in areas such as roads, railways and ports. The total Budget allocation to infrastructure for 2017-18 is `3.96 lakh crores, an increase of 10.5% over the revised estimate for the previous year. Road construction has been stepped up with emphasis on the rural roads program. The ambitious program for affordable housing is expected to roll out 20 million new houses in cities by 2022. With urbanization gathering pace, several opportunities are being created in areas related to urban management, including transportation and utilities.
It is heartening to note that industrialization is a priority in many States, in line with the overarching policy directives of the Center. In the spirit of competitive federalism, conditions are being created for a better industrial environment. Industrial corridors in the north and south are in the implementation stage, while port-led development is being envisaged along the coastline.
An assessment of the Government’s performance would not be complete without a mention of the surprise demonetization announced in November last year. While it did create some difficulties in the short-term, the rewards are being reaped now. In the six months after demonetization, the Finance Ministry has been able to bring over 90 lakh new taxpayers into the tax net, and has detected undisclosed income of over `20,000 crores. Indeed, one can look forward to greater tax compliance as the Goods and Services Tax (GST) is implemented, and cash transactions are discouraged.
Industry looks forward to the implementation of GST from July this year. This landmark reform of India’s indirect tax structure will create a single market across the nation and set the stage for enhanced productivity and efficiency in the economy.
The Modi Government must be commended for the achievement of this transformation through its constructive dialogue with State Governments. The positive impact on the economy will be apparent for several years.
Source: CII Communique 2017