Recent months have seen a set-back for India's economic growth, but the country's prospects look good as the world emerges from the global pandemic, writes Shagun Kumar.
India has made great strides in improving its economic performance over recent years – largely thanks to a wide-ranging reform agenda set in motion by the Government in 2015. But as attendees of a recent online panel discussion hosted by TMF Group heard, there is a great deal of work going on to make the country an even easier place to do business.
India is the world's second most populous country, roughly on a par with China at around 1.4 billion people. It has a highly educated talent pool, many of whom speak English, and a positive, entrepreneurial culture. Yet the country's economy is estimated at nominal GDP of USD 2.9 trillion, compared with China's USD 14.1 trillion (2019 figures).
This relatively slower economic performance, and hence the opportunity that lies ahead, is partly explained by the layers of bureaucracy that have built up over many decades in India, which have traditionally made setting up and doing business in the country more complex. India is the 18th most complex country (China is 6th) in which to do business according to TMF Group's latest Global Business Complexity Index, which ranks countries by the complexity of doing business in three key area: accounting and tax; rules, regulations and penalties; and HR and payroll.
Leading the charge in India's ongoing reform program is NITI Aayog, the National Institution for Transforming India, a government policy think-tank. Its role is to design and drive the implementation of wide-ranging reforms in four key areas: land, labour, compliance and tax legislation. The key aims are to create a level playing field for entrepreneurship and inward investment by reducing the role of the state in business activity; essentially making India an easier place to do business.
Speaking at TMF's panel discussion, Dr Rajiv Kumar, vice chair of NITI Aayog, characterized the Government's efforts as 'unblocking the bureaucratic cholesterol' that has historically held back growth in the country. He was bullish about India's future prospects and predicted that his team's efforts would see the country move quickly through the ranks of the Global Business Complexity Index by the year 2022.
It was clear from the discussion that India's reform agenda is gathering momentum, even if many of the changes are being made behind the scenes and may take time to bear fruit.
For example, the Indian Government recently announced that it has already removed some 1,500 redundant laws from the statute books. It also recently released digitized maps of land available for development – geo-tagged with demographic and other useful data for potential investors – as part of far-reaching land reforms.
One key area earmarked for transformation is national infrastructure. The Indian Government has committed to addressing what it calls the 'infrastructure deficit' through a 100 trillion Rupee fund to improve power utilities, railways, roads, ports and airports, and encouraging private participation.
Last year, the Indian Government announced measures to reduce the tax burden on the economy (including a new 25% corporation tax rate), together with more rationalized and seamless processes for reporting and assessment. Goods and Services Tax (GST) rates have been aligned nationwide, and the GST reporting and payment process has been digitalized.
Labour laws have also been pruned and simplified. Some 200 central and state level regulations have been rationalized and fortified (and some suspended altogether), to create a fairer, more consistent system.
Foreign Direct Investment (FDI) is being actively encouraged, particularly in the defence sector where there is now a more liberal regime for contract bidding.
Emerging fitter and stronger
While COVID-19 has pressed the pause button on economic activity, it has not dampened India's desire to continue with its reform agenda. If anything, the pandemic seems to have given the authorities space to identify and implement reforms that will spur recovery and growth even further.
But rolling out this huge reform agenda is not without it challenges – not least of which is the sheer size and complexity of the country itself.
India is more like a continent than a country, comprising 29 states with varying levels of economic development and market sophistication. Three layers of government – national, state and provincial – need to be on board and aligned if reforms are to have the desired positive impact. When talking about its size, the opportunity and the complexity, Dr Kumar compared India to the European Union, as a body and not any one country.
The Indian Government is introducing the private sector and withdrawing the public sector where it makes sense to do so. As Dr Kumar put it, the aim is to have 'less government and more governance'.
Recent months have seen a set-back for India's economic growth, but the country's prospects look good as the world emerges from the global pandemic. India's huge English-speaking, highly educated talent pool, its focus on high-growth service sectors, large untapped domestic consumer market, and ability to adapt to global business culture all contribute to huge headroom for growth.
It will be interesting to track how ongoing reforms drive India's performance over the coming years – not least in TMF Group's Global Business Complexity Index.
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