According to a new report by Nomura, India has presented the biggest turnaround story in the emerging market as it has been focusing on long-term, gradual GDP growth with slower methods, which help create sustainability in the markets.
As per the Nomura researchers, India’s GDP growth surged from 7.3 percent in 2015 to 7.8 percent in 2016 and is likely to witness 8.0 percent in 2017.
However, it already grew 7.9 percent in the beginning of this year, up from 7.2 percent in the last quarter of 2015. Nomura reports the main reason for India’s success story is its long-term focus on reforms and judicious policies – an outlook that lends itself to such gradual but sustainable expansion.
“In the world’s largest democracy, it shouldn’t be surprising that reforms are progressing only gradually,” says the report. “But over time they add up, which is more than can be said for most other large EM economies,” it adds.
Nomura has stated some of India’s successful reforms that have led to its growth including streamlined bureaucracy, boost in infrastructure spending, reforms in the power sector and flexible inflation targeting monetary policy framework.
The biggest advocate of these business and government reforms has been Prime Minister Narendra Modi, who came to power in 2014 and whose pro-business, pro-technological progress platform has helped India’s growth.
Raghuram Rajan, who currently heads the Indian central bank Reserve bank of India (RBI), is stepping down on September 4 this year, has recently said that Prime Minister Modi’s reforms have led to India’s macroeconomic stability.
According to Rajan, some of these ambitious structural reforms to revive growth include efforts to boost productivity in the agricultural sector, a strong push to deregulate business, efforts to improve public sector banks and an immense effort to expand financial services by providing bank accounts and direct benefit transfers.
The Nomura researchers don’t see agricultural productivity reforms as a success story yet, but they do see it as an opportunity for potential growth, along with more reforms in labour and education.
“India’s macro stability to the government’s path of fiscal consolidation and PM Modi’s measures to cut the fiscal deficit that had widened dramatically after the post-financial crisis stimulus.
India’s basic balance has not only improved considerably, but is once again positive,” Rajan credited.
Other factors that have boosted India’s GDP and led to the turnaround have been low energy prices and the RBI’s low interest rates and efforts to contain inflation.
India’s population demographics have also helped.
In contrast to many developed countries that are aging and shrinking, the developing countries like India are still young and growing – meaning more output, more demand and more growth.