Economist freaks out on India

Is India back in flavour- with the western media, if not with foreign investors? The Economist has as  many as four articles on India in its online edition- two on PM Modi, one on the Indian economy and a review of the book on the Indian economy by Arvind Subramaniam and Devesh Kapur. The tone is extremely favourable.

The title of the piece on the economy is telling: Rising giant- The Ascent of India's economy. The Economist lauds India's gdp growth of 7.4 per cent in a year in which it has been hit by a 50 per cent tariff on exports to US. The paper ascribes India's performance to three factors: luck, macroeconomic policy and structural reform.

India has been lucky to have had a second year of good monsoons which have boosted agricultural output and caused food prices to fall by 2.7 per cent in the past year. A low inflation deflation has boosted real gdp growth. Macroeconomic policy includes fiscal consolidation, a reduction in the Goods and Services tax and cuts in interest rates. Structural reforms comprise the reduction in labour codes from 29 to 4, financial regulation overhaul, removal of the cap of 100 per cent FDI on insurance and opening up of  nuclear power to the private sector. The government has signed three trade agreements: Britain, Oman and New Zealand. The Economist gives credit to Trump for spurring India's reforms.

The Economist says adversity has caused PM Modi to focus even more on economic reform and growth. It urges more reforms, some of the "big bang" sort that many economists have urged over the years but which the government has rightly eschewed:

The recent reforms are not enough. Some merely correct recent errors. Although India’s average tariff rate is drifting down, it is still higher than it was when Mr Modi first won power in 2014. Much-needed reforms to agriculture are still locked in a box marked “too hard”. So are changes to make it easier for companies to acquire land. India’s awful schools continue to waste hundreds of millions of young minds. Smog and traffic jams steal some of the boost India could gain from urbanisation. Unforced errors remain common: this month India’s Supreme Court alarmed foreign investors with a ruling that has thrown into confusion what tax they must pay on capital gains. 

Foreign commentators must understand that India will reform in its own way, with due regard for popular sentiment-  and this is an approach that has worked.