Boom with a view

The issues outlined by the prime minister’s economic advisory council meeting, highlighting the need to improve the regulatory framework in infrastructure and the financial sector, will help in improving investor confidence. Already, the Indian stock markets are booming. The historic highs by the Sensex show the confidence of the markets in future growth prospects. Their basis lies in the performance of the real economy. Encouraged by high profits seen in corporate results and by news of investment in manufacturing, investor confidence is booming.

Even though at the beginning of the financial year there was evidence that the Indian economy was on the upswing of an investment cycle, the new political alliance and the poor monsoon created fears that investment, which depends heavily on expectations, may see a setback. But recent data on investment reveals that, contrary to such fears, there has been a sharp increase in new projects envisaged, an unprecedented increase in projects revived and a sharp decline in projects shelved. The good news on exports —both merchandise and services — despite the rising rupee, has added to the positive sentiment. Industrial growth did not decline despite a poor monsoon, and remained above 7 per cent for most of the year. While inflation levels created anxiety, the inflation rate was kept under control, even though world oil prices rose sharply.

The India Economic Summit 2004, which opened on Sunday, is meeting at a time when foreign confidence in the Indian economy is very high. Foreign portfolio flows into India have attained new highs. Foreign direct investors are showing increased interest in the economy. The government has announced a set of sensible policies that have contributed to the improved confidence. These include the commitment to restrain the fiscal deficit, the cutting of custom duties to bring down inflation, and plans for far-reaching tax reforms such as the VAT and GST, which are designed to improve the efficiency of the system. Bold steps, such as the approval of the PFRDA Bill to set up a pensions regulator and to set up a new civil servants pension system, also have far reaching implications as they indicate lower pension liabilities and thus sustainability of the Central government’s finances in the long run. Steps to improve trade and economic ties with our neighbours are seen in a good light. The team in charge of the economy — whether at the PMO, the Planning Commission or at the finance ministry — has managed to send out one clear message to the world: India is going to be a modern, fast-growing economy. You can choose not to participate in her prosperity at your own peril.