A gift to ourselves

The new year begins with a wave of optimism about the Indian economy. With the Nifty crossing 1880, the stock markets are booming with hope and anticipation of rising profits. Half yearly corporate results show a rise in profits and sales. India is clearly and definitely on the upswing of a business cycle. Industrial growth in the first half of the year touched 8 per cent despite a poor monsoon. The manufacturing sector grew even faster at 8.2 percent. The latest export figures for September show a phenomenal growth of nearly 25 per cent. The high growth in exports of automobiles and components indicates that export growth is not limited to services. Tourism is at an all time high. Hotels and airlines are buzzing. Domestic and international air travel is up 25 per cent. Investment projects have shown an upturn. The number of new projects being announced is high, the percentage revived is an all-time high, and the number shelved in the first half of the year, amazingly low. India has witnessed a revolution in communications as cellphones overtook land-line phone connections. The growth of the service sector, IT and outsourcing to India on the back of a large pool of educated Indians has created more hope and optimism about jobs, than ever before.

The optimism rides on the strength of the belief that economic reforms in the country will surge ahead. The emphasis on investment and improved regulation will unleash forces that create wealth in the country. Tax reform is obviously high on the agenda of the government. This the first time that the government is considering a world class tax system 8212; the GST 8212; for India. Since it was put up for debate, it has been met by widespread support from various sections of society and today business can be hopeful that Indian manufacturers and exporters will soon no longer be subjected to myriad cascading taxes, bureaucratic hassles and corrupt officials. With a VAT in place India would join the ranks of the 100 other countries that already have modern tax systems. This one single reform has the potential to raise GDP by over 2 percentage points. P. Chidambaram8217;s visit to Lucknow on Wednesday to persuade Mulayam Singh Yadav to join the VAT regime shows the government8217;s seriousness to tax reform.

But possibly the best Diwali gift for the markets has come from West Bengal. Two Indonesian companies are set to build a township in West Howrah at a cost of 350 million. This is the country8217;s largest foreign investment in housing and its first FDI-funded project in a township. When a communist run state becomes a big destination for FDI, there is reason to rejoice.