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Slowdown reflects an investment in India’s future

Yatheendradas C.k. at 08:22 AM - Oct 12, 2017 ( ) Views: 185

Slowdown reflects an investment in India’s future, better years are ahead

India is an emerging market standout. The country was one of only a handful of large economies marked down in forecasts from the International Monetary Fund this week.

By: Bloomberg | Published: October 12, 2017 7:52 AM  The Financial Express

Why so defensive? The BJP’s political position, on paper, is absolutely dominant. It won a thumping majority in parliament in 2014, and more than half of the 26 state governments are in BJP hands, more than ever before. The Congress party, the main opposition, is kind of nowhere. Some pro-government talking points go along the lines of “Well, when Congress has been in government, they had slowdowns too.” Or they say India is suffering because global demand is weak — a highly contestable line.

Back to those forecasts. The peers with which India is closely associated — Brazil, China and Russia — all got slight upgrades, admittedly from a lower base. In the case of Brazil, a very low base. Overall world forecasts were raised a touch. The encouraging news is that in terms of impact, this is a pretty good year for India to miss the party. The others can easily make up for the lost ground. And it’s true that many countries would be envious of an expansion north of 6 percent.

India’s relative slowdown is a sensitive subject at home. Modi leaned into the issue in a speech last week, and Finance Minister Arun Jaitley spent Friday evening announcing cuts in tax rates on dozens of items. Taxes deserved attention. Most observers, including the IMF, attribute part of India’s funk to the implementation of a sweeping nationwide sales tax reform. The other factor is the withdrawal of some banknotes from circulation late last year, a radical step referred to as “demonetization,” aimed at curbing the potential for graft.

The tax shakeup was worthwhile, replacing a hodgepodge of sales tax rates that dotted the nation and differed from state to state. Modi has been justifiably praised for the move, one that governments of all stripes balked at for decades. After all, what’s a big majority for if you don’t use it do big, hard things?

That doesn’t mean there weren’t problems with implementation. Jaitley’s cut tax rates on 27 items and extended the period for small businesses to file returns. Critically, exporters were allowed to keep previously existing exemptions until March next year. The government has made boosting exports a priority.

In a democracy this large, attempting reforms on this scale, there were always going to be compromises and some operational sticking points. Better to address sooner than later. That is what’s happening. Better times may lie ahead. The IMF, for one, looks forward to a re-acceleration of growth after these blips related to the tax reform, saying it is “among several key structural reforms under implementation that are expected to help push growth above 8 percent in the medium term.” It is a vast market. It’s important for democracies to prove they can still do big things. Here’s to better years ahead.

 
 
 
 
 
 
 
 
 
 
 


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