Although the sentiment at home has been one of guarded optimism,
Prime Minister Modi was welcomed with rapturous applause in
Australia both for the G20 summit and for his state visit to
Australia. The Prime Minister has been recognized as a veritable
"man of action" and as the much awaited force of change
that India so desperately needs.
For instance, just before leaving for the G20 summit, Modi and
Obama achieved a breakthrough on the WTO impasse – the
disagreement between India on one side and possibly the rest of the
WTO members on food security had threatened to derail the
implementation of the Trade Facilitation Agreement. The
implementation of this agreement is a high-priority item for
developed nations and is expected to facilitate trans-boundary
movement of goods by (amongst others) reducing customs and similar
duties. It is reported that President Obama himself has credited
Modi with achieving this deal.
During Modi's state visit to Australia post-the G20 summit,
India signed five pacts with Australia including on issues such as
social security and tourism. These pacts are expected to improve
bilateral investments between India and Australia. The governments
of India and Australia are also targeting the execution of a
comprehensive free trade agreement.
On the home front, it appears that Modi has chosen to walk the
more strenuous path to economic development. Rather than announce
half-baked and quick-fire "economic reforms", Modi has
instead sought to tackle structural issues. The Central Government
has approved changes to certain industrial and labour laws in
Rajasthan, the most significant of which is the proposal to
increase the requirement for government permission to shut down a
unit that employs fewer than 100 workers to 300 workers. This limit
has been cited as one of the impediments to greater investment in
labour intensive industries and is expected to boost domestic as
well as international investment in the manufacturing sector in
The Finance Minister also announced that the government is
expected to introduce the Insurance Laws Amendment Bill in the
winter session of the Indian Parliament. The Insurance Laws
Amendment Bill is a crucial piece of legislation and its passage is
dear to the heart of the Indian insurance industry and the
financial services industry in general. This bill, in various
avatars, has been pending for nearly a decade and its passage will
hike the foreign direct investment limit in Indian insurance
companies from the current 26% to 49%. This hike would result in
the injection of much needed funds to the tune of an estimated
25,000 crore rupees into a cash-starved industry and would also
send a very strong signal to the domestic and the international
business community on the government's commitment to its
pro-business and reformist agenda.
The local business community is also closely watching progress
on the introduction of a goods and services tax (GST) in India. The
GST is described as a comprehensive tax on manufacture, sale and
consumption of goods. This tax is expected to dramatically reduce
(if not remove) the multi-layered taxation structures currently
prevailing in India by introducing uniform tax rates across India
and reducing exemptions. This is a key reform and a very cumbersome
one as this will requires constitutional amendments. The Finance
Minister recently stated that most of the contentious state-level
issues on this have been resolved and that other state-level issues
such as exclusion of liquor and petroleum products will also be
In a move that pleasantly surprised investors, the government
refrained from making a populist move on re-introducing fuel
subsidies following the global easing of crude oil prices.
Following up on the deregulation of petrol prices, the government
also deregulated diesel prices, thereby greatly easing the fiscal
deficit by reducing the government's subsidy burden.
While all that ails India cannot be fixed overnight the
government appears to be making steady progress on most markers.
The allowance of 100% foreign direct investment in the railways
sector and the increase of foreign direct investment limits from
26% to 49% in the defence sector have also been welcomed by both
the Indian and the international business community. The government
is also aggressively pitching its "Make in India"
campaign to promote local manufacturing in India. It is anticipated
that with the conclusion of state-level elections, the government
will cast aside its restraints and will introduce further
policy-level changes including further labour reforms and
single-window clearances for projects. India and the world await
with bated breath!
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