India’s new prime minister, Narendra Modi, is “taking his time about the change that investors are banking on”, says Fidelity’s Tom Stevenson in The Sunday Telegraph.
He is in charge of India’s first majority government in 30 years, so markets were hoping that he would crack on with structural reforms, including trimming fuel subsidies and introducing a goods-and-services tax, which would beef up trade between India’s many states. But no.
Still, that’s not to say he’s done nothing. “The small measures taken so far have at least focused on some big problems,” as The Economist notes. A shake-up of the civil service and making permits available online has greatly improved the pace of approval of big investment projects.
The central bank’s move towards an inflation target has improved credibility with the financial markets, and with price rises now subdued, interest rates may soon be lowered. Money that left India last year during the ‘taper tantrum’ has now returned.
All this suggests that growth should rebound to an annual pace of 6.5% or so from 5.5% this year. But unless Modi does a lot more, a return to the 9% GDP growth rate India enjoyed pre-crisis “is hard to imagine”.
Still, India’s problems are largely in the price, reckons Stevenson, so it is still worth a long-term bet. Aberdeen’s New India Investment Trust (LSE: NII) is still reasonably priced, on a discount of 12% to net asset value.