Foreign Direct Investment
During the campaign trail one of his campaign promises had been increased foreign direct investment (FDI). Since his inauguration Prime Minister Modi has met with the entire P5 (permanent members of the United Nations Security Council) of China, Russia, France, Great Britain and the United States. His willingness to meet and work with international leaders gives confidence to his ability to support investment in the Indian economy. He has also adopted a policy of “para-diplomacy” where he encourages city and states in India to foster economic and trade relationships with other parts of the world. This program has been quite successful with Mumbai partnering with Beijing, China and Varanasi connecting with Kyoto, Japan. Finally Prime Minister Modi has increased the foreign investment caps in insurance and defense from 22% to 49%. With India’s defense expenditure increasing to around $38 billion, experts believe it will rival that of China and the United States in the next 30 years.
Bureaucracy and Infrastructure
Increasing international participation in India’s economy is not enough to propel it to new heights—Modi is also addressing the internal bureaucratic and infrastructure issues that stifle the country. According to analysts, the Indian government has experienced significant issues in investments, public projects and job creation due to arbitrary decision-making and complicated approval processes. Prime Minister Modi’s “Red Carpet, not Red Tape” program seeks to eliminate that. He first implemented this program in Gujurat—making it an attractive place to invest through investment openness and accelerated approvals. At the national level, Modi plans to leverage his popularity in the private sector to encourage them to be involved in public welfare sector. In the infrastructure space Prime Minister Modi has promised a reformed railway system. The railway system has been long overdue for India. The current railway system functions very poorly. Every year, many deaths occur due to unsafe riding conditions, crossing tracks or exposure to high voltage wires. Businesses are hard pressed to predict when or in what condition their goods will arrive by train due to delays and theft. The main reason for this is the limited funds being allocated to maintenance and development of the rails—India spends $10 billion a year in contrast to China that spends $90 billion. Modi is drawing his inspiration from Japan by wanting to build a bullet train network. With a better railway, Indians can travel more effectively and efficiently around the country leading to greater productivity while goods will be transported more efficiently leading to increased revenue.
Regulatory and Transparency
Modi is also pursuing regulatory issues that plague India through changes in tax reform, eradicating the practice of black money, and increasing India’s transparency in general. A large part of the hesitation that international firms express is the confusing tax code. Modi promised throughout his campaign that he would reform and enact a simpler business and personal tax regime that will brings jobs to India. Black money is a leak in the system that weakens the country and reduces the amount of money being spent in the country. Modi had promised in his first 100 days to bring back all the black money being hidden by passing legislation and developing agreements with other countries. He has further promised to set up special tribunals to prosecute those who engaged in these practices. His desire to clean up India’s reputation combined with his top down transparency has improved the business outlook for India. Modi’s response to the coal price fixing scandal from earlier this year was to have it regulated online so the prices would be visible to everyone.
Make in India
Finally, Prime Minister Modi has recently implemented the “Make in India” initiative to bring back manufacturing jobs to India, and seeks to harness the energy of unemployed youths aged between 16-35 years. The “Make in India” Program emulates similar movements in Japan and China to create an export-oriented economy in 25 sectors such as Biotechnology and Information services. Through the program, businesses will have an easier time navigating complicated labor laws, reducing time on project approvals and will be able to create more manufacturing jobs. “Make in India” attempts to reduce the rampant unemployment in the younger age group and transitions India from a service-based economy to a manufacturing based one. Through this program India will see increased focus on manufacturing as international and local business will find it easier to implement their manufacturing operations.
Prime Minister Narendra Modi has worked hard to adopt his new image of corporate style reformer of the struggling business that is India. His ambitious new plans have struck a cord with the international community making him very popular. Modi’s no nonsense approach instills confidence in India’s ability to support business and investment. More importantly than actual legislation is Modi’s attack on India’s poor reputation—the biggest issue it faces. Stereotypes are India’s biggest barrier to joining the ranks of the United States, China, France and Germany. Treating India like a business is perhaps what is needed to make it great again.
This article is the opinion of the author and is not shared by India Currents or any of its staff. All investors should conduct their independent analysis before taking any actions and should not make any decisions on the information provided in this article alone.
Rahul Varshneya graduated from the Leavey School of Business at Santa Clara University with a degree in finance and is working in the technology industry as a financial analyst. If you have feedback or have a topic you would like addressed please contact Rahul at firstname.lastname@example.org.