At a poll rally in Assam yesterday, former prime minister Manmohan Singh called the current Prime Minister Narendra Modi a ‘dream merchant’, whose foreign trips, projected as great achievements, have yielded nothing. But, the foreign investors appear to be in complete disagreement with him.
While it is correct that major reforms like the Land Act amendment, labour law changes, and even the goods and services tax (GST) are still stuck, and the tax mess is still far from being cleared – the pick-up in foreign direct investment (FDI) since the NDA government has taken over, clearly indicates to a return of faith of the foreign investors in the Indian economy.
More significantly, this situation has emerged as a big support at a time when the trade deficit scenario is unlikely to get better in the near future, and there is significant downside risk to income from the remittances and services exports.
According to a Moody’s Investors Service report, net FDI inflows into India hit an all-time high in January 2016, at $3.0 billion, and the country’s “current account deficit is now more than covered by its FDI inflows”.
In fact, the report points out that, “The basic balance (the sum of the current account balance and net FDI) returned to a surplus in 2015 after being in deficit from 2003 to end 2014. The rise in FDI points to stronger investor interest in India on the back of robust economic growth. Higher inflows also suggest that recent government policies, such as efforts to liberalize foreign investment limits in several sectors and the ‘Make in India’ initiative, are bearing fruit”.
Not only this, the global rating agency believes that ‘the development of industrial corridors, investment and manufacturing zones, and ‘smart cities’ will further bolster investment inflows’, and the share of the manufacturing sector in the GDP may rise to 25% by 2022, from the current 17%.
This improvement in the sentiments as compared to the UPA regime, is probably the reason why the impression that India is the ‘bright spot’ in the global economy, is gaining ground rapidly.
So, instead of trying to project that the current government is failing everywhere, even though the statement was made at a political rally, Manmohan Singh would do well by trying to ensure that the Congress party continues its support to the passage of reform bills in Parliament, which it showed in the first half of the budget session by supporting the Real Estate Bill.