As Prime Minister Narendra Modi approaches the end of his first year in office with modest achievements and incremental change, India’s business leaders are looking for him to step up efforts to boost growth in the $1.9 trillion economy.
At the top of India Inc.’s wish list are investments in infrastructure, simplification of rules for acquiring land and implementation of a proposed national sales tax. Executives say the government should take the lead in financing new roads and public projects to give the maximum boost to Asia’s third-biggest economy.
V.S. Parthasarathy, group chief financial officer at Mahindra & Mahindra Ltd., suggests Modi make a dramatic move by investing as much as 1 trillion rupees ($16 billion) on infrastructure in the next six months. That would provide the country with tangible assets, signal confidence in the future and inject cash that would cascade through the broader economy.
“This will kick start the boom loop,” Parthasarathy said. “We need to clear up the ecosystem on the goods and services tax and the land bill and evolve consensus.”
After riding to power last year promising better days ahead for the world’s second-most populous country, Modi’s seen mixed results as he battles opposition in the upper house of parliament to get bills approved.
While his critics say he’s merely a man of rhetoric and too little action, he has four more years to prove them wrong before the nation’s next elections.
Modi’s successes include allowing foreign companies to invest more in defense and insurance, a “Make in India” marketing campaign to attract manufacturers and a drive to open bank accounts for the poor to facilitate direct cash transfers and cut out middlemen.
But two major proposals -- a bill to create a national sales tax and another to make it easier to buy land for factories -- remain stalled in the upper house of parliament, where Modi’s ruling Bharatiya Janata Party lacks a majority.
While the GST bill will likely be considered by parliament in the next few months, getting projects off the ground continues to be a challenge.
“The investment may need to come from the government or the enabling of public-private partnerships,” Parthasarathy said. “The risk will need to be borne by the government as the balance sheet of the private sector is already stretched.”
That’s because banks, saddled with bad loans, are averse to taking on more risk. Stressed assets in the nation’s banking system will rise to a 15-year high of 13 percent of total advances by March, according to India Ratings and Research Pvt.
“In the current adverse economic environment the bank has taken a conscious decision to have a slow growth in lending,” said Ranjan Dhawan, chief executive officer of Bank of Baroda, India’s second-largest lender by assets. “It doesn’t make sense to have a very aggressive loan profile now.”
The S&P BSE India Capital Goods Index of construction and engineering companies advanced 0.5 percent at the close in Mumbai trading, compared with the 0.1 percent drop in the benchmark S&P BSE Sensex.
It may not be feasible for the government to pump in huge amount of funds as it seeks to curb the fiscal deficit.
“At this point in time the government can’t have unlimited budget allocations,” said Shubhada Rao, a Mumbai-based economist with Yes Bank Ltd. “The government can put seed capital and ask public-sector units to expand, which in itself will translate into a trillion rupees and kick start an investment cycle.”
Speed of Implementation
Modi has tried to speed up environmental and other approvals for major projects since taking office. While the 25 percent jump in expenditure on roads, bridges and ports in the current fiscal year may look good on paper, implementation is key. Actual infrastructure spending in the year ended March is estimated to have risen 3 percent, short of the 21 percent increase budgeted a year ago.
“I would like investment to happen,” said Natarajan Chandrasekaran, CEO of Tata Consultancy Services Ltd., India’s largest software-services company. “We need mega infrastructure projects to happen.”
Companies are also counting on speedy implementation of GST as the multiple levies such as sales tax, excise duty and state entry taxes raise their cost of doing business, said Ajay Seth, CFO at Maruti Suzuki India Ltd., India’s biggest carmaker.
“A number of companies are waiting to get some clarity before adding capacity,” said Seth. “Once infrastructure projects take off and people see action on the ground, they’ll be more keen on finalizing investments.”
The government’s programs including “Make in India” are aimed at job creation and move away from being “the one-trick pony” of services-led growth, said R. Shankar Raman, CFO of Larsen & Toubro Ltd.
“India has begun to speak the right language,” he said. “What we are hoping is that it will have a good dose of reforms.”