No one believes the economy is returning to an 8% or 9% growth trajectory in the next couple of years, but theyre hoping the new government will work towards it. Bharat Forge chairman Baba Kalyani put it plainly enough when he said on Friday: We expect the government to put the stalled projects on a fast-track mode, push for better investments and focus on the anufacturing sector.
Industry understands its not going to be an easy ride even if the BJP has a clear majority in the 543-seat house. As Sunil Kant Munjal, joint MD at Hero MotoCorp, points out, the government needs to take tough decisions on the goods and services tax and foreign direct investment. Modi should review his partys opposition to FDI in multi-brand retail. It is easy to put in caveats to protect small traders, if thats the concern, Munjal said.
However, theres confidence and belief the government will get to work fast. For instance, Pawan Goenka, CEO, Mahindra & Mahindra, expects GST to be implemented very soon.
That the NDA, between 1999 and 2004, played a key role in initiating the nations infrastructure build-up is what convinces corporates that Narendra Modis government can deliver. The BJP manifesto promises it will quickly complete the freight corridors and industrial corridors, spruce up airports and build new ones, roll out a high-speed train network, develop waterways and construct 100 new cities, all of which is comforting. The problem is whether the government and private players will be able to find the resources estimated at $1 trillion to fund the projects given corporates remain highly leveraged and banks inadequately capitalised.
Which is why the BJP governments handling of foreign investors will be critical. As Adi Godrej, chairman, Godrej Group, put it, the government needs to improve the ease of doing business in India, which was never very good but deteriorated in the last three years. Multinational corporations such as Vodafone, Nokia and Shell have been at the receiving end of the UPA government in tax matters transfer pricing cases often retrospective in nature, forcing them into long-drawn litigation.
While attracting MNCs is necessary to boost investment in core spaces such as oil and gas, what Indias youth will be looking for is an environment thats entrepreneur-friendly. As experts point out, small business has been strangled in red tape even as crony capitalism thrives. A recent industry ministry report showed there were states in India that had industry-friendly rules whether for land acquisition, single-window clearances, indirect tax management systems or labour management. While reviving industry will be the immediate objective, the larger agenda, over a period of time, would be to facilitate entrepreneurship.
Meanwhile, the stock market continued its celebrations on Friday, although the Sensex came off its highs by the end of the session. Samir Arora, founder and fund manager, Helios Capital, said that markets typically do not discount events like these so soon.
This will go on for months and years. The rally is a new cycle, a new phase, and a new round of optimism and unless something breaks it, I believe it is going to go for a long, long time, Arora said.
According to Nilesh Shah, global investors will now view India positively. Within our peer group, China is busy resolving its credit bubble, Russia is involved in a political crisis with Ukraine, Brazil has weaker macroeconomic fundamentals and Indonesia and Turkey have political risks, Shah said, pointing out that a resurgent economy would encourage local investors to allocate more of their savings to equities.