India's new govt seen to rev up investments, tame inflation

19 May 2014 09:30 Source:ICIS News

Focus story by Ajoy K Das

IndiaKOLKATA (ICIS)--India is expected to rev up investments that should translate to faster project clearances and rein in inflation under a new government, industry leaders said on Monday.

Hindu nationalist Bharatiya Janata Party (BJP) won a landslide victory in the country's general elections – the first time that a single political party was given a clear majority of seats in the Indian Parliament since 1984.

This meant that the next Indian government will be able to avoid the pulls and pressures of a coalition politics and take hard decision to reverse negative indicators plaguing the economy, according to industrialists and industry representative bodies.

“This is a thumping vote for stability, progress and good governance. The new government must accelerate economic growth and create environment that is conducive to revival of investor optimism,” said Kumar Mangalam Birla, chairman of Aditya Birla.

Adiya Birla is a $40bn conglomerate that has business interests ranging from chemicals, fertilizer, acrylic fiber, telecom to financial services.

“We expect the next government to put stalled projects back on the fast track with focus on manufacturing,” said Baba Kalyani, chairman of Bharat Forge Ltd.

The company is part of the $2.5bn Kalyani group, which has businesses in oil & gas, power, automobile, and aerospace sectors.

The Indian electorate gave the BJP 282 of the 543 seats in the next Parliament, giving it majority seats as a single party. The party fought the month-long elections leading a coalition of political entities, which as the National Democratic Alliance (NDA) won 336 seats. BJP leader Narendra Modi will be India’s next prime minister.

“The Indian industry has hopes on Modi, who has a proven track record of governance as chief minister of Gujarat. The agenda of the new government should be aimed at achieving a growth rate of 10%,” the Associated Chamber of Commerce (ASSOCHAM).

In the two five-year terms of the outgoing government since 2004, industries have fretted over a worsening of India’s key economic indicators such as GDP, inflation, fiscal deficit and the rupee value in the foreign exchange market.

India’s economic expansion has slowed to 4.0% in the fiscal year ending March 2014, from a peak of 7.1% achieved in 2004-05. The country is one of the biggest emerging economies in Asia.

Its fiscal deficit as a percentage of GDP, meanwhile, grew to 4.6% from 3.9% about a decade ago, but lower than 6% in 2011-12, according to government data.

Inflation was at an average of 5.92% in 2013-14, from 3.9 % in 2004-05, while the rupee has depreciated to average Rs62.00 to the US dollar, hitting an all-time low of Rs69.00 last year, from Rs45.27 in 2004-05.

“We are drawing up a list of suggestions on the Indian foreign trade policy, which would be among the first things the new government will have to frame and announce over the next one to two months, Engineering Export Promotion Council (EEPC) chairman Anupam Shah said.

“The next government through the new foreign trade policy will need to focus on reducing transactions costs in terms of central and local level taxes, implement the unified nationwide Goods and Service Tax (GST) to make Indian products competitive in global markets, he said.

“The government would, through macro policy initiatives, should also stabilize the exchange rate of the rupee, to enable Indian exporters to efficiently and strategically price their products for export markets,” Shah said.

“Also in terms of governance, the new government would have to ensure faster  re-imbursements of several taxes against export shipments. There is a huge backlog of taxes to be reimbursed to exporters and this has seriously affected cash flows of exporting companies,” he added.

Prime Minister designate Modi has been the chief minister of Gujarat for four consecutive terms and is largely perceived as friendly to big businesses.

The western Indian province of Gujarat has been the base of some of the largest oil, chemicals and petrochemical companies in the country, such as Reliance Industries, Essar, Indian Oil Corp, ONGC and Petronet LNG Ltd, among others.

The province accounted for 65% of total Indian petrochemical production and 52% of domestic chemical output, according to data from the Gujarat Chemical Association.

Soon after poll results were announced on 16 May, addressing a victory rally, Modi said: “ Development will be by ruling slogan. The era of divisive politics is over.”

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By Ajoy K Das