Game changing reforms awaken a giant in India

India has become the fastest-growing major economy in the world thanks to its business-friendly outlook.

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All aboard: India is set to steam ahead

The most positive recent development in the global economy "is the re-awakening of the Indian giant", says John Hulsman in City AM. The government expects growth to climb to 8% next year, making India the fastest-growing major economy in the world now that China is slowing.

And while the annual budget, which has just been announced, left some major reforms, such as liberalisation of the labour market, for later, it was still "unambiguously business-friendly [and] more than good enough" to keep India moving in the right direction.

One key theme is infrastructure, where capital expenditure is set to increase by 25%. Spending on highways will more than double and a third more will go on railways. This will be paid for by slowing the pace of the ongoing fiscal squeeze. With lower oil and commodity prices keeping a lid on subsidies the government pays consumers, this looks like a gamble worth taking, says the FT.

It also bodes well that the government has rationalised the "chaotic tax system", the FT continues. From April next year a nationwide general sales tax (GST) will replace "a patchwork of taxes and fees imposed at state level". Business reckons the GST "is a potential game changer".

You can see why, says economist.com. By establishing a genuine common market across the country and dismantling local protectionism, it could add up to 2% to national income. Other measures include a reduction in corporation tax from 30% to 25%, accompanied by the closure of "a dizzying array" of loopholes and a pledge that retrospective changes to taxes will be avoided.

Making the tax regime "simpler and more rational will boost investment and create jobs". Meanwhile, a new e-business portal will act as a one-stop shop for 14 of the permits required to start a business.

All this points to higher economic and profit growth in the years ahead, while the current backdrop remains favourable. With inflation under control, there is scope for the central bank to cut interest rates further. After several years of lacklustre profit growth, broker Kotak is pencilling in a 17% increase in earningsat India's top 50 companies this year.

The benchmark Sensex index isn't cheap on a forward price/earnings ratio of 19, but MoneyWeek's favourite India play, Aberdeen's New India Investment Trust (LSE: NII), is on a 7% discount to net asset value.

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