Continue investment

India has sent a clear signal through its Budget 2017-18 to foreign investors to continue investments, writes #Girija Pande, Chairman of the Singapore-based #Apex Avalon Consulting Pte Ltd.

India will continue to welcome foreign investments and will remove bureaucratic hassles of doing business. To further improve business environment, it has announced plan to abolish Foreign Investment Promotion Board which had long outlived its utility and was a hurdle to large foreign investments in the country.

On the fiscal side, the government has continued its policy towards consolidation and fiscal deficit is expected to reduce to 3.2 per cent, down 0.3 per cent from previous year.

There is a move to anchor the overall debt to around 60 per cent of Gross Domestic Product (GDP) from currently 65 per cent so as to improve India’s rating one notch higher.

Inflation, surprisingly, has been in checked under 5 per cent which will permit interest rates cut by at least 2 per cent over 2017/18.

Massive infrastructural spend by the government, especially in road and railways, will help remove transport bottlenecks endemic to movements of goods across India and to ports.

This will create opportunities for many companies, both domestics and foreign, who could supply equipment and services profitably in this massive infra-modernisation plans.

Railways, however, need major investment to increase their haulage capacity and regain lost market share to road transport.

Freight growth remained a lowly 2 per cent in the year.

The Central Budget 2017-18, which consolidated the Rail Budget for the first time, was silent on how railways will grow in coming years – a critical factor in the growth equation.

Pump priming rural demand by major investments in the farm sector will create purchasing power in rural sector which has seen a surprising high agricultural growth this year of 4 per cent of GDP due to a good monsoon.

This along, with major increases in wages of largely urban civil and military personnel some months ago, will create a huge demand for consumer goods which suffered acutely due to demonetization introduced on 8 November 2016.

Demonetisation and introduction of #Goods and Services Tax (GST) later in the year will create transparency in payments (via digitisation) and hopefully increase tax compliance in a country, notorious for its non-compliant tax culture.

This will add substantially to government revenues on a yearly basis.

As part of increasing transparency in political funding, the Budget has attempted for the first time few radical suggestions of funding via bearer bonds.

On the negative side, the Budget failed to come to terms with twin balance sheet problems of stressed assets of the state owned Banks (non-performing assets at 11.5 per cent) and the Private sector, hoping they will grow out of their problems if growth accelerates beyond 7.5 per cent of GDP this year.

Growth in private investments turned negative during the year while industrial growth index was a mere 2 per cent.

There is a view in government circles that its massive spend would push this up as investments in manufacturing both by domestic and foreign investors is expected to be much higher. fii-news.com