India: the new tiger?

India requires a series of major structural reforms to realise its economic potential. If these are achieved then India could follow in China's footsteps as the most dynamic emerging market economy.

By InvestSMART · 13 Mar 2015

By InvestSMART ·
13 Mar 2015

Comments

India requires a series of major structural reforms to realise its

economic potential. If these are achieved then India could follow

in China’s footsteps as the most dynamic emerging market

economy. However, if India fails to reform its restrictive policies,

the economic pressures, such as rising unemployment and social

unrest, would be extremely damaging.

A decisive year for India

India faces a fork in the road, with important implication for the country and the region. After sweeping to power last year, there are great expectations that India’s Prime Minister Narendra Modi will deliver on badly needed reforms. He campaigned on a promise to bring a Gujarat-style of government to New Delhi, one where government works as a facilitator for business rather than a barricade. As the first prime minister to hail from the ranks of state government, Modi brings a unique perspective to governance and is attempting to upset the status quo. The pace of reforms may have disappointed those hoping for a rapid transformation, but the decisions taken so far have still been important: easier regulation, streamlined approval processes and

improving the functioning of the executive government.

This is helping to clear the supply and governance bottlenecks that

have been holding back growth. Although the new government has made a good start, much deeper structural reforms will be necessary if India is to raise its potential growth significantly and become a middle-income country over the coming decades. Indeed, there is the opportunity for India to overtake China as the fastest growing large emerging market. Modi will need to shift his focus though from improving bureaucracy to changing India’s growth model fundamentally. Due to the rapid growth in the country’s working age population, India will need to create an additional 10 million jobs per year to absorb the growing labour force. Since the economy began to liberalise in 1991,India has been excessively reliant on services-led growth. Manufacturing will now have to take up more of the slack.

Modi’s campaign slogan, “Make in India”, will therefore need to be made a reality. In this Global Perspective, we set out the challenges in more detail, including the precise reforms that are necessary to turn India into Asia’s new tiger. The downsides if the government raises hopes but fails to press ahead are palpable, not only the threat of weaker growth and

greater social unrest but also a turnaround in already high investor expectations about the prospects for Indian assets.

To read the rest of this article, please click here

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What are the key structural reforms needed for India's economic growth?

India needs to implement major structural reforms to unlock its economic potential. These include easing regulations, streamlining approval processes, and improving government efficiency to clear supply and governance bottlenecks.

How could India become the next dynamic emerging market economy?

India could follow in China's footsteps as a dynamic emerging market by implementing necessary reforms, shifting from a services-led growth model to one that includes more manufacturing, and creating millions of jobs to accommodate its growing workforce.

What challenges does India face in becoming a middle-income country?

India faces challenges such as the need for deeper structural reforms, creating 10 million jobs annually to absorb its growing labor force, and transitioning from a services-led economy to one that includes more manufacturing.

What is the significance of Prime Minister Narendra Modi's leadership for India's economy?

Prime Minister Narendra Modi's leadership is significant as he brings a unique perspective from state governance and aims to transform India's economy by facilitating business growth and implementing crucial reforms.

Why is the 'Make in India' campaign important for India's economic future?

The 'Make in India' campaign is crucial for India's economic future as it aims to boost manufacturing, create jobs, and reduce reliance on services-led growth, which is essential for accommodating the rapidly growing working-age population.

What are the potential consequences if India fails to implement necessary reforms?

If India fails to implement necessary reforms, it could face weaker economic growth, increased social unrest, and a decline in investor confidence, which could negatively impact the prospects for Indian assets.

How does India's current economic situation compare to China's past growth?

India is at a crossroads similar to where China was before its rapid growth. With the right reforms, India has the potential to become the fastest-growing large emerging market, similar to China's past economic trajectory.

What role does India's growing labor force play in its economic development?

India's growing labor force plays a critical role in its economic development. The country needs to create 10 million jobs annually to absorb this workforce, which requires a shift towards more manufacturing and industrial growth.