The cogs of growth are now mostly in place. The Narendra Modi government, which came to power on the promise of transforming the Indian economy, has, over the past two and a half years, made several important structural changes that should begin to show results over the coming quarters.
It has, for example, passed the Bankruptcy Code to speed up liquidation of sick companies, is well on the way to legislating the Goods and Services Tax (GST), which will stitch India’s 30 states and seven Union Territories into one common market and ensure a digital trail of transactions that will make evasion and corruption that much more difficult and early in November, demonetised high value Rs 1,000 and Rs 500 notes to strike at the heart of India’s shadow (black in local parlance) economy that feeds off and encourages crime, evasion and corruption. The expected extinguishing of about $70 billion in currency notes – and, in effect, government liability of an equal amount – is expected to lead to a 100 basis points (bps; 100 bps = 1 percentage point) cut in interest rates over one year that should help growth rates move up sharply. Read more…