One hurdle for the Indian economy is the plethora of rules and regulations making it difficult to do business here.
India seems to be the flavour of the season. The foreign media is writing laudatory articles about the rise of the digital economy and the demographic dividend of a country that is now the most populous in the world. There are some adverse comments about the lack of inclusivity but these are largely buried in the good news about the expansion of Big Tech like Apple. The splashy launch of its first retail stores here made headlines even though it has only a small share of the smartphone market. The ‘China Plus’ policy being followed by many multinationals has also brought India into the limelight as investors search for alternative manufacturing centres. Here too Apple has set the tone with its collaborators like Foxconn making big investments in the southern states of Tamil Nadu and Karnataka.
Gloomy Global Outlook
The question is, how come India is looming so large in the perceptions of both foreign investors and media. The reasons are not far to seek. With a bleak geopolitical scenario, given the dismal prospects of an early end to the Ukraine war, the ripple effects continue to impact countries around the world. Inflation remains sticky, ranging from five to seven percent in OECD economies. Aggressive rate hikes by central banks persist though the US Federal Reserve has hinted it will shortly take a pause. To add to the gloom, the global banking industry is in trouble with contagion risks imminent as medium-sized banks like First Republic in the US are failing in the wake of the collapse of the Silicon Valley Bank.
Fossil fuel prices and availability also remain an area of concern for most countries. Oil prices have stabilised to less than $80 per barrel after OPEC+ flexed its muscles and cut production quotas in early April. But there is little certainty about the outlook for oil markets for the rest of the year.
The net result is a slowing world economy. The International Monetary Fund has predicted that global growth will fall from 3.4 percent in 2022 to 2.8 percent in 2023. The outlook for advanced economies is worse with a decline expected from 2.7 to 1.3 percent.
India Looks Promising
It is against this backdrop that India looks like an over-achiever with growth set to exceed six percent in 2023-24. This will make it the fastest-growing economy in the world. The Reserve Bank of India has taken a breather from its rate hikes as inflation moderated since last year and the economy looks on a recovery path after the contraction during the pandemic. Revenue collections from the Goods and Services Tax reached record levels of Rs 1.87 lakh crore in April 2023 indicating industrial buoyancy. The manufacturing and services Purchasing Managers Index, a survey which reflects business activity, has also risen in April, with the composite index rising to a 13-year high of 61.6, indicating a strong demand for new orders and services. Agricultural growth is equally robust.
But the India story is not without its weaknesses. The country has become the most populous but the sharp comments of Chinese spokespersons about the better education of their workforce are uncomfortably near the mark. This country faces big challenges in its drive to provide a meaningful and skill-oriented education to the youth. The dropout rate for secondary education is currently estimated at 14.6 percent while the quality of schooling also needs revamping to meet contemporary requirements.
Unfinished Agenda
The next step is to provide jobs for the 900 million people currently in the working age segment. The pandemic worsened the employment situation but the outlook is now better. The unemployment rate for April rose to a four-month high of 8.1 percent, but this has come along with a big rise in the labour participation rate. According to the Centre for Monitoring Indian Economy, the labour force increased substantially by 25.5 million during the month.
The final hurdle for the Indian economy to reach its true potential is to do away with the plethora of rules and regulations making it difficult to do business here. Even countries like Indonesia or Vietnam have an easier investment climate, which is why many companies looking for an option to China are moving there.
So, it is all for the good that India has become a preferred investment destination. But this interest will only be sustained as long as this country is able to overhaul its education system to churn out skilled workers to fill the factories now being built here. Reforms for easing the process of doing business will also have to be intensified if it is to be a worthy competitor to other countries trying to lure investors. Much has to be done. Let us hope policymakers can make changes sooner rather than later to sustain the India growth story.
Sushma Ramachandran is a senior journalist based in Delhi. Views are personal, and do not represent the stand of this publication.
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- Source: https://www.moneycontrol.com/news/economy/itâs-indiaâs-momentthe-sun-more-reforms-will-increase-its-attractiveness-to-investors_16990961.html
