What bothers foreign investors about Indian economic reforms

What bothers foreign investors about Indian economic reforms

Let us take a look at what is not working for us right now: 

1. Timing of the reforms: Popular perception dictates that the best time to get any major reforms in place is in the first two years of the five-year term of a government. The new government can get reforms passed on the basis of their political capital and the by the sheer will to set the perception of the people into motion. The current government came into power in May 2014 and is soon reaching the end of this window to push reforms. Thus, questions are being raised about the speed at which the reforms have been made over the last 15 months. 

2. Legislative issues: The government has been unable to get the Goods and Services Tax (GST) Bill passed in the Upper House of the parliament, the Rajya Sabha, in this monsoon session. This is a big cause for concern. The main reason for this bill to not become law is that the current government has little dialogue with members from other parties in the Rajya Sabha. The current government has only about 45 seats of the 245 seats in the Rajya Sabha. The GST Bill proposes a comprehensive indirect tax on manufacturing, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. This Bill proposes to replace all indirect taxes under one uniform nationwide levy. The implementation of the bill could boost the GDP growth of the county by 1-2%. Other reforms like the Land Acquisition Bill and the Whistle Blowers Protection Bill are also stuck in the Rajya Sabha due to the same reason. 

3. Waiting for the big bang: The whole world seems to be playing a waiting game for the reforms in India. These include disinvestment or professional management at state-owned companies, reforming labour and industrial dispute acts and reforming food and fertiliser subsidies. After 15 months, the mood is not very favourable towards the changes happening at the pace they are. While we have been able to see some reforms, the pace of the reforms is a concern for all. 

4. RBI hesitant to cut rates: An overhaul of the infrastructure to ensure supply to markets is needed to curb inflation. This is reflected in the high food inflation prevailing despite overall inflation trending down. The government has to go after those involved in corrupt practices like hoarding. A weak monsoon could also add to the concern. RBI has so far cut rates by 0.75%. Yet, banks have not transmitted that retail borrowers. The government has to take steps to give confidence to RBI that it would do all it takes to keep inflation to where RBI wants it to be. 

5. Corporate spending: High-interest rates are not letting corporates plan any expansion. For growth to surge, Indian companies have to borrow money from banks and expand their business. That will create jobs. However, balance sheets of companies are strained and banks are not willing to lend more as they are saddled with loans that do not generate income or non-performing loans.

Happy Investing