By Andrei Skvarsky.
An article released by London-based investment advisory firm Machlin-Oracle argues that India now has a chance of speeding up its economic growth after a current slowdown.
This presumed opportunity has been created by the victory of right-wing Hindu nationalist Bharatiya Janata Party in May 12 elections and the designation of its leader Narendra Modi as prime minister, Suneel Sheoran, an analyst with London-based secondary-market private equity firm Secondcap, says in a guest article for Machlin-Oracle.
Modi, a controversial politician who had his US visa revoked in 2005 for “severe violations of religious freedom”, caught India’s imagination by promising “double digit rate of growth”, Sheoran says.
Modi is credited with transforming Gujarat after a devastating earthquake of 2002. He has been chief minister of Gujarat since 2001. “Gujarat today is very unlike India [Indians] say. The infrastructure is excellent, big business is welcomed with open arms, entrepreneurs are flourishing, and the administration is smooth with non-existent red-tape,” Sheoran says.
India maintained a growth rate of more than 8.5% from 2009 to 2011 despite the global financial crisis, an achievement put to the credit of its central bank.
However, growth slowed to less than 5% in 2012 and is still at that level because of inflation of between 9% and 10%, the Fed’s tapering, capital outflow and the significant depreciation of the rupee.
“Policy logjams have slowed investments and eroded investor confidence while big-ticket corruption scandals have forced the courts to cancel 3G telecom licenses and ban mining in some states, hitting the economy badly” Sheoran says.
“Can Modi turn it around? The markets certainly back him. Foreign institutional investors have pumped in large sums of money in the stock indices,” the analyst says.
“The Rupee is enjoying a bout of relative stability against the dollar, backed by dollar inflows so large that the RBI [central bank] has had to mop up a portion of the dollars to prevent a sharper rise in the rupee’s external value that would have hurt export competitiveness. Not so long RBI was doing the reverse. Modi’s no-nonsense and hands-on approach they say will do away with the bottlenecks and policy logjams that have haunted many impending industrial projects, his track record of providing corruption free governance will be helpful in keeping the courts from interfering too much and his business friendly image will bring back the foreign capital,” Sheoran says.
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