What could have gone better?
Our previous article on India made mention of the “Make in India” drive. Reiterating what we stated last time, the “Make in India” campaign is not inward looking but rather is aimed at attracting more overseas businesses to set up part of their global manufacturing operations in India.
While of course such attempts to boost the manufacturing sector will take time, so far we have seen only marginal changes in manufacturing activity.
Mr. Modi’s “Make in India” drive, which aims to supercharge manufacturing growth to 12% to 14% a year, is so far mostly hype. There has been no drastic improvement yet, with manufacturing activity only expanding at single digit levels from the previous year and electricity shortages and congested ports holding back growth.
However, it is still relatively early into the campaign. Few should have the expectation that the “Make in India” campaign will have an immediate effect on output. India still has plenty of opportunity to turn itself into a manufacturing hub and the government’s target.
- Unpredictable tax collection
As part of trying to improve its image as an investment hub, the government has tried to clean up what has been seen as an unpredictable tax collection system into a more favourable tax environment. Fears of tax harassment of corporations would diminish, and when tax cases against some major foreign corporations were found in the corporation’s favor, the decision from the government not to appeal made it appear this promise would be fulfilled.
However, in late April, a retroactive tax bill was then placed on some foreign investors, much to their surprise. This has led many to question whether any proper progress has been made to improve the tax law situation.
Nevertheless, tax reform in India is an ongoing issue.
- GST and Land Acquisition bills
Most reforms announced or implemented so far are still set to put India on the right track for improvement in growth and output. Few have been on the large scale side, but the two biggest disappointments for observers and a further example of legislative difficulties still being faced, despite the BJP’s control of the lower house, were the delay in the passing of the GST and Land Acquisition bills.
The GST policy would have combined and incorporated various different state and central tax systems in an attempt to simplify tax codes. The GST change appeared to have support from both the Congress party and BJP, but has nevertheless been delayed. The Land Acquisition bill would have made it easier for land to be used for certain categories of projects, speeding up negotiations with owners and development. The opposition parties have painted the Land Acquisition bill as overly favoring big businesses.
The delay of the GST and Land Acquisition bills has been seen as a negative to the government’s ability to push ahead with reform, but we still believe it is a matter of when, and not if, the GST change will go ahead. Other policies may be trickier to pass and may be handed down to the state level to be dealt with.
India’s new GDP growth figure has been a source of much confusion. The new methodology should have put it in line with more generally accepted calculation standards, but the results of this new figure does not seem to line up with other indicators or the general public’s perception of India’s growth rate.
The new numbers show growth increasing at a faster pace than China, despite most other measures indicating a sluggish economy. The significant difference between the two (old and new GDP growth series) has caused uncertainty over how to interpret the new growth data.
