India's economic goals give cause for cheer

PRIME Minister Narendra Modi has promised to kickstart India's stalled economic growth. On Monday, his government revealed its roadmap through an address to a joint session of Parliament by President Pranab Mukherjee, who said the priorities for the government would be energy, infrastructure and the creation of manufacturing jobs.

Mr Mukherjee's clear articulation of goals should give businesses and investors cause for cheer, particularly after the previous government's waffling over policy decisions. He promised tax rationalisation and acknowledged that retrospective tax laws, ironically introduced by him when he was Finance Minister in the previous government, is not a step in the right direction. He also reiterated the government's commitment to implement a GST (goods and services tax) regime to replace India's arcane tax laws. GST has hit a roadblock on account of opposition from many state governments, particularly those ruled by Mr Modi's Bharatiya Janata Party (BJP). A government panel has noted that a countrywide GST regime could add 1-2 percentage points to India's GDP. Mr Mukherjee also reiterated the government's commitment to push growth to 8 per cent and above, a rate that the country needs in order to create enough jobs for the 20 million or so new entrants into the workforce every year. Separately, Mr Modi has stated that one of his priorities would be to curb runaway government spending and lower the current account deficit.

There are signs that the economy may already be improving. In its first review of the monetary policy since the election, the Reserve Bank of India has held the Repo rate steady at 8 per cent. This should release liquidity into the system and help to boost confidence and fuel investment. The stock markets have gained around 3 per cent since the elections results were announced and, till last week, foreign institutional investors (FIIs) had pumped in about US$1.2 billion, post-elections, into the stock market. The Indian rupee has also rallied against the US dollar. Tax consultancy Ernst & Young has predicted an uptick in economic growth to 6.2 per cent this fiscal year and 8 per cent over the next three years.