India cleans up its act

India’s anti-corruption drive and structural reforms are bearing fruit in the economy and the markets.

When India became an independent country on 15 August 1947, many feared that it would collapse into chaos. Instead, 70 years on, it is widely considered on track to become the world's third-biggest economy by 2030.

India expanded at around 3.5% a year until the early 1990s, when it adopted free-market reforms that allowed growth to move up a gear. Now the annual rate is over 6%. Growth has dipped following last November's sudden and chaotic withdrawal of two banknotes, which jointly comprised 86% of the country's cash.

The economy will recover, however, and a lasting positive effect is that the move has "given real momentum to India's anti-corruption campaign", says Una Galani on It was part of a process of clamping down on illicit wealth and creating paper trails; the government is forcing people to link their biometric data with "everything from tax returns to mobiles".

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It seems to be changing attitudes towards compliance. Last week, India reported a 25% increase in income-tax filings, more than double the growth in the same week last year. Corruption is the top problem facing emerging markets, and India is starting to "clean things up".

Investors are quite pleased with the government for another reason too. The stockmarket has gained 30% since the current prime minister, Narendra Modi, took office. He has introduced more structural reforms, notably a national goods and services tax that constitutes "a big step towards knitting diverse provinces into a single market", says Mihir Sharma on The previous patchwork of different taxes and duties had hampered business.

A handful of recent state elections, meanwhile, have ensured that Modi's governing BJP party has "practically no political rivals of consequence left". With a free hand in parliament, the hope is that he can keep up the momentum on reform.

Even if he can't, the outlook remains encouraging for now, with inflation and interest rates at a five- and six-year low respectively. India also has plenty of longer-term advantages, including a presence in key global industries such as pharmaceuticals and IT, and a young, big population, with an average age of 30. That should underpin consumption for years to come. MoneyWeek's favourite India play is the Aberdeen New India investment trust (LSE: ANII).

Andrew Van Sickle

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.