Why India’s growth outlook is positive
The India Economic Summit 2014: Good and bad news for investors (Part 3 of 14)
India’s growth outlook
The India Economic Summit 2014 looked at some factors that are working and others that can be detrimental to the Indian economy. If India doesn’t deal with these detrimental factors, these factors can undo all the good that the newly elected government hopes to accomplish.
Policies for facilitating business are effective only if the macroeconomic environment is conducive. Otherwise those policies are like an elegant staircase inside a run-down house.
In this article, we’ll take a look at the factors that are working for India. Later in the series, we’ll take a look at the ones that can be detrimental for its economy.
Key points from the summit
Anand Mahindra, chairman and managing director for Mahindra & Mahindra, a diversified company, had positive views on India’s growth outlook. In his opinion, India was on the right path after policy paralysis. He further thought that the nation needs a mix of big bang reforms and steady, consistent reforms.
Other panelists at the summit wanted big bang reforms for manufacturing, land acquisition, labor laws, and building infrastructure. Clearing the backlog on projects was also high on the agenda. Ajay S. Shriram, president of the Confederation of Indian Industry (or CII), said that “clearing the large backlog of projects will automatically change the business sentiment.”
Global optimism
It is not just the panelists who are optimistic about the growth potential of India’s economy. Global multi-lateral agencies like the International Monetary Fund (or IMF), the World Bank, and the Organisation for Economic Co-operation and Development (or OECD) also have a positive view of India.
After two successive fiscal years of below 4% growth, all three agencies have projected around 5.5% growth for FY14 and over 6% growth in the following year. The IMF doesn’t have projections for India for 2016.
In its economic outlook, OECD said that while economic growth will slow in China and remain sluggish in Brazil and Russia, it will quicken in India. It said that “improved business sentiment resulting from reduced political uncertainty, deregulation, and the government commitment to cut red tape should boost growth.”
Investors in India-focused ETFs like the WisdomTree India Earnings Fund (EPI), the iShares MSCI India ETF (INDA), the iShares S&P India Nifty 50 Index Fund (INDY), iPath MSCI India Index ETN (INP) and the PowerShares India Portfolio (PIN) have already seen superlative returns this year. The CNX Nifty, India’s equity benchmark, has registered more than a 33% rise this year. If this optimism is backed up by action, these investments may continue to witness a rise.
Another attraction towards India has been due to the superior performance of the equity market among the BRICS nations. We’ll take a look at that in the next article.
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