India Growth Report 2018



India continues to make progress with policy reforms and initiatives that are making India a place with unprecedented opportunities for global and domestic businesses.

India’s progress on the World Bank’s Ease of Doing Business rankings, to a rank of 100, progressing from 14201 just three years ago (2015), reflects a focus on this topic at the centre and the states. Building on bankruptcy reforms, major nonperforming assets situations were identified for resolution and actions moving forward. Foreign Direct Investment (FDI) was further liberalised. In 2016-17, FDI reached an all-time high of USD60.1 billion.

A stable macroeconomic environment is a precursor to growth. India has demonstrated a resolve to achieve fiscal consolidation, complemented with aggressive and not purely populist measures. Retail inflation averaged at 3.4 per cent for the April – January FY18 period, significantly lower than 4.5 per cent during the same period in FY17, and, while fiscal deficit for FY18 modestly increased to 3.5 per cent of Gross Domestic Product (GDP), attributed mainly to uncertainty over Goods and Services Tax (GST) collections, the government is committed to further lower it to 3.3 per cent in FY19. The government has also addressed the deterrents and roadblocks to the country’s potential to grow, with progressive policy reforms such as GST and the newly formed Insolvency and Bankruptcy Code (IBC).

In spite of some reformative steps that slowed the growth momentum in the first quarter of FY18, the economy is likely to grow at 7.4 percent in 2018, higher than the advanced economies and the world, i.e., 2 per cent and 3 per cent, respectively.
India has been recording the highest growth rate amongst the Brazil, Russia, India, China and South Africa (BRICS) economies. Buttressing India’s stability is its foreign exchange reserve of about USD420 billion.

Ease of doing business (EODB) is an area where concerted actions have led to important results. The government has adopted more than 7,000 initiatives to improve EODB in the country. As a result, India is now placed amongst the top-five countries that improved its ranking in the World Bank’s Doing Business 2018 Report and, for the first time was ranked in the top 100 economies.

India recorded improvements in 9 out of 10 indicators supported by major measures such as time-bound clearance of applications, de-licensing manufacturing of defence equipment, single-window clearance mechanism, reducing documents required for trade and introducing a single form for online return filing.

This should be recognised as just the beginning of India’s continued efforts to become one of the most investor friendly nations, as it continues to focus on progressing in areas such as trade across borders, enforcement of contracts, registration of property and starting a business to create a more enabling, participative and inviting economic ecosystem.

Improving ease of doing business is an important enabling factor for attracting investments.

Other aspects to advance investments are the promotion of new sectors for investments, skill enhancement and employability. These areas are intertwined and are of key importance to investors. These are being addressed through several central government schemes, which have been adopted by most states.
New regulations also play a key role. While the GST unifies the country’s tax regime, the IBC helps address the resolution of high levels of Non Performing Assets (NPAs) – USD128 billion across 38 listed public and private banks, which have been weighing down the banking system.

This report also highlights India’s efforts to be a digitised economy. A consequence of demonetisation, adopted in November 2016, was the significant thrust to digital transactions in the country. The volume of digital transactions has increased significantly, reaching a record level of 1.1 billion in December 201708. In addition, the cash-to-GDP ratio declined to 8.8 per cent as of FY17, registering a drop from 12.2 per cent in FY16, indicating increased formalisation of the economy.

This report also analyses the progress achieved under several national priority programmes. Skill India, a flagship initiative of the government, has been able to strengthen the ecosystem wit qualified individuals by way of increasing the number of Industrial Training Institutes (ITI) in the country and offering the total number of Qualification Packs (QPs) across sectors.

The setting up of State Skill Development Missions by states has advanced the upskilling of the country’s workforce.

Similarly, the Swachh Bharat Mission and Smart Cities Mission have gained momentum and are promoting administrative professionalism and citizen engagement. Other initiatives like Startup India and Make in India have made inroads into different sectors of the economy, helping states foster a culture of entrepreneurship and innovation.

Sound infrastructure is important for business. Many steps have been taken to address port development and connectivity issues to make India a global logistics centre. The coastal shipping sector in India currently contributes to merely 6 per cent of the entire coastal and inland waterway freight movement. Plans are underway to double this share by 2025.

An area of significant progress has been roads, the lifeline of the country, where significant projects are being accomplished through public private partnership (PPP) models.

This sector has been opened up for 100 per cent FDI under the automatic approval route, subject to applicable laws and regulations.

Bharatmala is envisaged as a programme to develop 34,800 km of roads in its first phase, along the lines of Sagarmala which is a connectivity initiative in the ports and shipping sector. The Railway Budget in 2017 was consolidated with the Union Budget and the government earmarked a historic budget outlay to reshape Indian railways and allied sectors. With the growing need and importance of alternate sources of energy, the government has taken a series of initiatives, especially in the renewable energy (RE) sector paving the way for a host of investment opportunities in this growing sector as detailed in this report.

A majority of the industrial activity happens in the Micro, Small and Medium Enterprises (MSMEs) sector. Indian MSMEs, with approximately 63 million units, contribute 8 per cent to national GDP, employ over 111 million people and manufacture over 6,000 products.

The government intends to enhance the manufacturing sector’s contribution to 25 percent of GDP. Hence, several central government schemes are made to benefit this sector directly. Key steps have been taken by the government for this sector including reduction of the income tax rate of 25 per cent for MSME companies having a turnover of upto USD38.65 million and Minimum Alternate Tax credit carry forward extended to 15 years from 10 years.

Looking ahead, the promise of the many government initiatives mentioned must be realised through rigorous monitoring of these programmes.

India still needs to take further steps to restructure its trade and FDI regime. The country needs to be even more responsive and flexible to address global investors’ requirements.

It is now imperative that a fine balance be struck between the need to push public investment on the one hand and keep the fiscal deficit under check on the other.

Consumer spending could get a boost with a wise mix of public spending and other fiscal reforms to spur demand in the nation. The government will need to facilitate increased exports and further streamline the GST ecosystem.

Reforms are vital for sustainable growth. The Indian economy is moving in the right direction with initiatives taken towards stepping up infrastructure investment, land and labour market reforms and measures to boost manufacturing growth.

While all these can still be classified as an ‘unfinished agenda’, a significant volume of work has already been undertaken towards the completion of these tasks, in terms of a conducive policy environment as well as on the ground effort.

A combination of supportive global growth, improving capex, fiscal spending, a buoyant consumer and concerted policy efforts augur well for a stronger growth outlook for the Indian economy over the short to medium term.

India is marching ahead and setting examples for not just the developing economies but also for developed ones. India has many successes to be proud of – ranging from the Aadhaar programme extending unique identification to 1.14 billion individuals in 2017 to policy measures that provide an impetus to entrepreneurship.

Areas of focus and progress are varied and include simplification of taxes, focus on improving ease of doing business, right to information, universal education, food security, sanitation, rural employment
and governance and transparency.