Cutting the Red Tape

Reforms. Change. Confidence.

Those are the terms that come to mind when we think about what has transpired between May, 2014- and now.

But there is growing pessimism that while a slew of reforms have been announced, execution is still to happen.

Take, for example, the fact that at the “Vibrant Gujarat Summit”, Prime Minister Modi had to proclaim the following words:

“We are trying to complete the circle of economic reforms speedily.  We no longer live in a world where a country is going to be competitive if the bureaucracy sends people from door to door and window to window and meeting to meeting,” he said.

Which brings us to the obvious implication. If the Prime Minister needs to state out loud that the government is working on cutting red tape, pursuing predictable policies, and ensuring stables taxes in order to “make India the easiest place to do business”- then these steps have not yet been taken.

Kerry’s Take: Speed is of the Essence

US Secretary of State John Kerry, during his current visit in India for the Vibrant Gujarat Summit, echoed similar words.

“We can do more together, and we must do more together, and we have to do it faster,” Mr Kerry told the meeting.

“Together, we can create an environment where all of our companies play leading roles in bringing cutting-edge technologies, equipment, capital, and know-how not just to India but to countless countries that need this growth and development now.”

Speed and timeliness. It’s the American way of doing business, and Kerry is making it clear that the US wants India to move at a quicker pace.

Key Takeaways

The closer we pay attention to what is being said by both Modi and Kerry, the clearer the picture becomes: time is of the essence.

And if that is the case, 2015 could be a dramatic, breakthrough year. The reason is simple: the only way India will be able to maintain its high level of investor optimism both domestically and internationally is by keeping its foreign counterparts satisfied. 6 months down the road, Kerry and other senior global Diplomats should be applauding the government on its reforms instead of urging for faster reforms.

Speedy reforms is easy for us to wish for; but keeping in mind Modi’s track record, quick implementation of reforms is very much likely, but will force the government to invest heavily into the country.

The creation of millions of jobs is the highest priority, and this involves a massive investment into the “Make in India” model. Reforming land rules, tax laws, cutting down on bureaucratic constraints that make it difficult for private firms to be able to function seamlessly- all of which will force the government into a tricky corner of not overburdening its budget.

The catch-22 is that, by sticking to its pledges- reforms will allows FII and DII funds to keep flowing into India, thereby making the investment opportunities a reality. Hand-holding the overhaul is going to be the most challenging aspect.

For GDP to continue clocking in at a 7% rate and, as projected, to grow further, industrial production will need to rapidly improve. In order for that the happen, the government might needs to force its hand and perhaps enforce a repo rate cut through the RBI so that banks can take out loans in a more seamless manner. With banks being able to borrow money at reduced rates, reforms will get expedited. There is a very high chance that by the end of this month, a rate reduction in the repo rate becomes a reality.

And for  you, the trader and investor? If things go as planned- the financial markets have a way to forecast the future. Judging by the way that consumer confidence is still high and the Sensex can very well touch 30,000 before the start of the financial year- a speedy, upward surge in the markets over the near future should not be unexpected.

Cheers,
RKSV

 

Staff

Staff

  • asdfasdf

    “banks can take out loans in a more seamless manner.”

    What is stopping them now?

    • Hi there!

      Nothing is stopping chimerical banks from borrowing from the central bank (RBI); however, if the RBI wants to promote growth and increase liquidity (money supply) in the economy, it can reduce the repo rate, thereby making it easier and “cheaper” for commercial banks to borrow money and pass it on the consumers. This, in turns, promotes spending and growth in the economy.

      I hope that answers your question!

      Cheers,
      Raghu