The Indian economy has undergone a remarkable transformation in the past few years. Stock markets have soared, with the Nifty experiencing a phenomenal 25% growth in FY24. This robust growth in corporate earnings is reflective of the increased focus on manufacturing and infrastructure development, and renewed stability in the banking sector. Foreign Direct investment (FDI) is pouring in. The eagerness of global firms eager to establish a physical presence in the world’s largest democracy, especially fuelled by India’s emergence as a viable alternative to China in the global manufacturing landscape is evident by the explosive rise in FDI. After a record-breaking annual FDI inflow of $83.57 billion in FY 2021-22, FY 2023-24 is on track to surpass previous years with the first half of the year witnessing an FDI inflow of $17.96 billion. Complimenting business and market growth, entrepreneurship is flourishing as well, with startups and aspiring entrepreneurs emerging in every corner of the country. Boasting over 90,000 startups as of 2023, India is now the world’s third largest startup hub. Buoyed by a resilient economy and strong and stable government focused on reforms, the national mood is that of optimism and possibilities. Against this backdrop of surging growth and a youthful, ambitious population, India stands poised to cement its position as a rising global superpower.
However, to fully unlock its potential, India and Indian businesses need a consistently supportive and enabling business environment; One that further streamlines regulations and tax reforms for ease of doing business, while ensuring policy stability and transparent regulatory frameworks to promote long-term investments and sustainable growth.
Here are some of my thoughts on what Indian businesses expect from the new government.
Navigating the Maze: Streamlined Regulations for Ease of Doing Business
Complex regulations remain a hurdle for businesses in India. The government must prioritize streamlining regulations, particularly for new entrants and foreign investors. Initiatives like the single window clearance system are positive steps, but further efforts are necessary to reduce approval timelines and bureaucratic red tape. A focus on digitizing government processes and adopting technology-driven solutions will enhance transparency and expedite approvals, alleviating the burden on businesses.
Predictable is Key: Tax Reforms for Long-Term Planning
A stable tax regime is paramount for business planning. While implementation of the Goods and Services Tax (GST) was a landmark reform, further improvements are imperative. Harmonizing tax rates across sectors, simplifying tax filing procedures, and minimizing litigation are crucial. Additionally, the government should consider rationalizing the tax structure for startups and incentivizing research and development (R&D) activities through tax breaks, which in turn can foster innovation and entrepreneurship culture and boost long-term growth.
Beyond Domestic Capital: Unlocking the Potential of Sovereign Debt
India’s remarkably low foreign debt to GDP ratio at
* Stable Financial System –Diversification of the investor base and reduced reliance on domestic capital
* Cost-Effective Financing Options – Foreign capital often carries lower interest rates compared to domestic sources, effectively translating into cheaper funding for critical investments in infrastructure and social development projects, ultimately propelling sustained economic progress.
While India has issued foreign currency bonds in the past, primarily to Non-Resident Indians (NRIs) during forex shortages, the current proposal is broader. Our low debt profile and strong fiscal position can be advantageous in diversifying the investor base and creating a more vibrant debt market, deeply integrated with the global financial system, solidifying our position as an economic force.
Strategic Privatization: Rejuvenating Public Assets
The government still makes considerable investments in Public Sector Enterprises (PSEs). While the establishment of the National Infrastructure Investment Fund (NIIF) in 2015 was a welcome move, the government’s holdings in PSEs and their privatization efforts require a more strategic approach. Past attempts to divest stakes in PSEs have not been very beneficial (especially when the purchase and sale were between two PSEs) as it involved a mere transfer of ownership. For instance, HPCL was sold to ONGC and REC to PFC, but both, HPCL and REC continue to operate independently till date. Despite the huge disinvestment efforts in the past (in years like 2017-18), the privatization plan has not reached its full potential. Recent strategies like divesting smaller stakes through Offer for Sale (OFS) or accumulating multiple stakes and building them up as part of Exchange Traded Funds (ETFs) have had limited success. The much-anticipated Air India privatization, while finally achieved, yielded less than expected considering the airline’s past resource consumption. It is time the government starts aggressively attracting private investment in strategic sectors, particularly infrastructure. A transparent and well-defined divestment process, coupled with competitive bidding, will ensure fair market valuation and maximum returns. This will not only inject fresh capital into PSEs but also incentivise efficiency and innovation, leading to a more competitive and vibrant economy.
The Road Ahead: Capitalizing on the Growth Momentum
India’s current trajectory, characterised by low inflation, robust corporate earnings, and increasingly positive investment climate needs to be sustained through further policy reforms that encourage private investment. Initiatives like the Production Linked Incentive (PLI) scheme that incentivizes domestic manufacturing hold significant promise in propelling India towards becoming a global manufacturing hub.
A Clear Horizon: Policy Stability for Sustainable Growth
Businesses require a stable and predictable policy environment for strategic. Frequent policy changes create uncertainty and hinder long-term planning. The government should prioritize long-term policy coherence to boost business confidence to invest and expand. Regular consultations with industry stakeholders are key to ensuring that policies are industry-relevant and capable of addressing the evolving needs of the business landscape.
These outlined expectations represent the collective voice of Indian businesses. India’s economic potential is undeniable. The critical question is whether policy can keep pace. The answer lies in the new government’s ability to translate its mandate into a business-friendly environment. Streamlined regulations, predictable tax reforms, and strategic use of its low debt are the keys to unlocking this potential. The world is watching. Will India seize this moment and orchestrate a symphony of growth, or will potential remain a lingering melody?
About the Author: Deepak Narayanan, Founder & CEO of Practus.
Disclaimer: The views expressed are solely of the author and ETCFO.com does necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation.
