India's economy steps out of the glue

published 16 January 2015

For the first few months after his May 2014 election win, India's prime minister, Narendra Modi, made slow progress on structural reforms, says The Economist. But towards the end of the year he became "hyperactive".

The most eye-catching measures include a bill aimed at making it easier for large industrial projects to acquire land, an increase in the cap on foreign investment in the insurance sector and a reauctioning of coal-mining licences (the Supreme Court had annulled a previous round amid evidence of corruption).

The snag is that these measures haven't completely passed through parliament. The government got them through the lower house, where it has a big majority, but not the upper, where it is outgunned. So it issued a temporary executive order in each case.

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These will lapse if not reaffirmed by both houses of parliament within six months. However, if passing legislation continues to prove sticky, Modi can call a joint session of parliament to vote on various bills, which, given the greater number of legislators in the lower house, he would be expected to win.

In the meantime, other changes have impressed investors. The state has streamlined the approvals process for investment projects. The number of days required to register a business is to be reduced from 27 to one. The railways sector will be completely opened up toforeign ownership.

The government has amended the Factories Act and the Apprentices Act to make hiring easier a "radical step", saysR. Jagannathan on firstpost.com. In addition, Modi plans to introduce a law to establish a uniform rate of GST (the equivalent of VAT) across the country, which should cut bureaucracy and bolster trade.

The impression of increasingly bold action appears to have helped cheer up India Inc. It announced $63bn of new projects in the fourth quarter of 2014, a four-year high. Meanwhile, the tumbling oil price should encourage consumption and lower inflation, allowing interest-rate cuts.

While "most of the emerging-market world seems stuck in glue, India is bouncing back", concludes Abheek Bhattacharya in The Wall Street Journal.

Our favourite India investment, the New India Investment Trust (LSE: NII), remains appealing, but is on a lower discount to net asset value than usual; investors may wish to wait for the next global market setback before topping up their holdings.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.