India’s prime minister, Narendra Modi, is “a charismatic international statesman”, says Victor Mallet in the Financial Times. But his three-day trip to Britain this week, including an address to 60,0000 British Indians at Wembley Stadium, “will for the first time be overshadowed by trouble at home”.
“It makes sense for Modi to court” the diaspora, notes Una Galani on BreakingViews.com: the World Bank estimates it has savings of $44bn. But the “rock star welcome” jars amid recent setbacks at home, including what Moody’s Analytics called the “belligerent provocation” of religious minorities by Modi’s Hindu nationalist governing party. That may well have contributed to the government’s defeat in a state election last week, which will make it harder for the BJP to push through key reforms.
Land acquisition laws are currently very restrictive, notes Capital Economics, so it’s no wonder that the number of new large-scale investment projects is sliding to multi-year lows. If this isn’t addressed, Modi’s goal of turning India into a manufacturing powerhouse could be thwarted. Modi also wants to harmonise VAT rates across the country to promote trade and growth. But at this rate, it may not happen until 2017.
Still, it isn’t all gloom. The government has stepped back from applying retrospective taxesto foreign financial companies. Corporate tax is to be cut from 30% to 25% in the next few years, and a national infrastructure and investment fund should boost public investment. The government has also streamlined the approvals process for investment projects and slashed the time required to register a business.
Meanwhile, the macroeconomic backdrop has improved. The falling oil price has given the central bank scope to cut interest rates. And India’s longer-term advantages – including a world-beating pharmaceutical sector that has been growing at an annual rate of 20%, and encouraging demographics – remain intact.
By 2025, India is expected to have overtaken China to become the world’s most populous country. In five years’ time the average age will be 29, compared to 37 in China and 48 for Japan. All this implies an expanding workforce and rising consumption for years to come. Our favourite India play, the New India Investment Trust (LSE: NII), is currently on a discount to net asset value of 10%.