Indian foreign direct investment reforms hold promise
Dubai - Expo 2020 in Dubai and 'Make in India' campaign offer scope for JVs
The easing of the foreign direct investment (FDI) policy by India is expected to provide enormous opportunities for investors from the Gulf region. The Expo 2020 and 'Make in India' campaign offer the UAE and India more avenues for joint ventures and economic cooperation, an eminent economist said.
Dr Narendra Jadhav, a former chief economist at the Reserve Bank of India, said India's food processing sector may soon open up for FDI, which will have key positive implications for the Gulf region.
"Moreover, with Expo 2020 coming up, India can be an important contributor by providing skilled people. The opportunities for both countries are tremendous. With the Indian government on a major campaign to promote 'Make in India', there are more opportunities to form joint ventures between the UAE and India," he said.
Dr Jadhav said the 2016 Indian budget has sent out a strong message to the international community that India means business and it would strive to work hard towards bringing down the fiscal deficit to 3.5 per cent of the gross domestic product. Sticking to the deficit target of 3.9 per cent is a great achievement for the Indian government albeit the finance minister has played a trick to achieve that target. "The savings he made on oil revenue were instrumental in meeting the target."
In his keynote address at an event organised by the Gulf Maharashtra Business Forum (GMBF) in Dubai, Dr Jadhav put into perspective how the budget works and how it would impact blue-collared workers as well as entrepreneurs. He cautioned that people should not expect to see immediate results in one budget. "We will have to wait and see what happens in the next few years to know the outcome of the government's economic policies," he said.
Sunil Manjrekar, president of GMBF, and Nilesh Khare, prominent Indian TV anchor and managing editor of Jai Maharashtra TV, were among other speakers at the event.
Catalysts for growth
Dr Jadhav pointed out that there are two important components that had helped spur the pace of India's economic growth. Political will and technological factors have greatly increased the pace of economic growth worldwide. "India was on the brink of an economic collapse in 1991, but change in policies and efforts by former prime ministers Narasimha Rao and Manmohan Singh helped change the path of the Indian economy. Growth accelerated fast and picked up speed between 1992 to 2001 at six per cent per year," he said.
"There is no doubt then that India is the fastest growing country in the world. Though its growth potential is between eight and 10 per cent, the country is still far below its optimum potential and the main challenge faced by the Indian finance minister is how to accelerate the growth rate and achieve that potential," Dr Jadhav said.
"When oil prices were falling, the finance minister did not pass on the benefit entirely to the consumer. If you look at last year, though oil prices were dropping, the retail price of petrol went up by Rs12 while diesel prices went up by Rs13.6. So collectively in indirect taxes, the finance minister collected Rs990 billion more and this came handy in keeping the budget deficit down. The benefits may have not reached the common man, nevertheless it helped meet the budget target and therein lies the trick," explained Dr Jadhav who has penned 36 books and 296 research papers.
According to him, the Indian budget has two major challenges. One is to put some sort of economic discipline to contain the fiscal deficit and second is to promote participatory and inclusive growth that includes all strata of society. "Mere rise in GDP is not enough, growth should be evenly distributed to different strata of society," said Dr Jadhav.
Keeping the target may be difficult for the finance minister next year as there are huge challenges to do that. "There will be an expenditure of Rs920 billion for the 7th Pay Commission next year and add to that Rs140 billion for the One Rank One Pension scheme which together totals to Rs1,060 billion. So, keeping up with that target may be a tough ask next year."
"So, what is the good thing about this budget? Reasonable, good provisions will be implemented and hopefully the bad ones will be rectified," he said.
On the prospects of the Indian rupee depreciation, he said it is not an unhealthy thing. "A weak currency does not mean a weak economy, and a strong currency does not mean a strong economy. There are various other factors that determine strength and health of an economy."
On the Goods and Services Tax Bill, he said it is the biggest tax reform that is contemplated after 1991 as "it would help remove a lot of taxes that would be replaced by one single tax to make life simpler while transforming India into one, single integrated market."