Prime minister has put India back on investors’ maps, but some overhauls have stalled
Indian Prime Minister Narendra
Modi speaks during the opening ceremony of 2015 Hanover Industrial Trade
Fair in Germany, on April 12. Mr. Modi's "Make in India" drive hasn't
boosted manufacturing growth in India as much as hoped.
Photo:
Luo Huanhuan/Zuma Press
NEW DELHI—A year after Indian voters
handed Narendra Modi a once-in-a-generation mandate for change and economic
revival, messy realities are sinking in.
The Indian prime minister has swaggered across stages
from New York to Paris to Sydney since taking office, helping put the country
back on investors’ maps. And as he marks the anniversary of his swearing-in on
Tuesday, he can point to some accomplishments.
He has allowed more foreign
investment in railways and defense and helped cut red tape. His government has
deregulated fuel prices and permitted private competition in coal
mining—market-friendly moves designed to attract investment. For the poor, his
administration has helped open millions of bank accounts and created new
pension and insurance programs.
But on other key fronts, Mr. Modi
has moved less decisively, frustrating investors who hoped for bolder change
after last year’s election. Mr. Modi pledged to shake up the world’s
second-most-populous nation after years of fitful economic growth.
His government has avoided privatizing
state-run banks and companies, which could trigger unpopular job cuts. Despite
vows to improve India’s reputation for unpredictable tax collection, the
government has hit investors with demands for back taxes they say they
shouldn’t have to pay.
Mr. Modi’s “Make in India” drive,
which aims to supercharge manufacturing growth to 12% to 14% a year, is so far
mostly hype. In the year ended March 31, manufacturing activity expanded by
6.8%, from 5.3% the previous year, with electricity shortages and congested
ports holding back growth.
Although the economy expanded 7.4%
in the year ended in March, analysts say that result was inflated by recent
revisions in the way the statistics office estimates output.
By other measures, the economy is
merely limping along. Inflation-adjusted lending for capital investment last
year fell to a level not seen since 2004. Factories are running at 72% of
capacity and slowing. Exports were down for the fifth straight month in April.
Spring’s corporate earnings were dismal.
Foreign institutional investors have
pulled around $2 billion out of Indian stocks and bonds in May so far, compared
with a net investment of $15 billion in the first four months of the year.
India’s benchmark S&P BSE Sensex
is among the worst-performing major Asian indexes this year, with a gain of
0.5% through Monday. Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index
are up more than 16% so far this year.
“We’ve reached that time wherein the
euphoria phase is over,” said Gaurav Patankar, who co-manages more than $7
billion in emerging-market investments for the Boston Company Asset Management
LLC, a unit of BNY Mellon Corp.
He says he is positive on India
long-term, but that the government needs to make it easier for businesses to
acquire land, among other reforms. The “next six months would be critical.”
Arun Jaitley, India’s finance
minister, rejected suggestions that Mr. Modi’s honeymoon was ending.
“A year ago, there was a general environment
of gloom. In place of that there is an atmosphere of enthusiasm,” he said in a
news conference Friday.
Other senior officials have said it
would take time to fix India’s problems.
A stock dealer watches share prices
on his screen at a brokerage house in Mumbai in January. India’s benchmark
S&P BSE Sensex is among the worst-performing major Asian indexes this year.
Photo: Agence France-Presse/Getty Images
“You’ve just got to chip away,” said
Arvind Subramanian, the finance ministry’s chief economic adviser. “Things will
cumulate into something big.”
Mr. Modi told an Indian newspaper
this month that he has changed Indians’ view of their government as corrupt,
slow-moving and absent in times of need. A year ago, he said, headlines were
about “this scam or that scam, this hasn’t happened, that hasn’t happened.”
Some companies are pleased.
“We are seeing a lot of progress in
ease of doing business,” said Krish Iyer, president and chief executive of Wal-Mart Stores
Inc. in
India. “We feel encouraged by the market- and consumer-driven policies of the
government.”
ACB (India) Ltd., a Gurgaon-based
coal-processing firm, said it began seeking federal environmental clearance for
a major new plant in 2007. The previous government’s environment ministry never
made a decision, but the new one did, said Vishnu Sahay, a vice president at
ACB. “This government doesn’t sit on files,” Mr. Sahay said. “In our case,
they’ve laid down many conditions, but at least it is done.”
Ashok Lavasa, India’s environment
secretary, says Mr. Modi has sent a clear signal down the bureaucracy’s ranks
that the routine functioning of government must improve. “That’s how you tackle
delays.”
Still, Mr. Modi has come up against
the legislative limits of his power, despite his party’s large majority in
Parliament’s lower house. Parliament’s latest session ended this month with two
important reform bills in limbo.
Protesters stage a rally in New
Delhi on May 5 against the government's proposed land-acquisition bill, which
has angered many rural residents. Photo: Agence France-Presse/Getty Images
One, to help streamline India’s
tangle of federal and state sales taxes,
will likely pass later this year. The other, which would make it easier for the government to seize rural land
for new factories and infrastructure, will be harder.
Opposition is entrenched in farming
areas, where land remains the sole productive asset for people like Om Prakash,
who grows wheat and mustard in Haryana state.
When the government announced plans
to build a warehouse complex several years ago in his village, residents
protested. Mr. Prakash says police shot him through his torso during a 2012
clash, landing him in the hospital for two weeks. A spokesman for the district
police acknowledged officers fired on farmers but said it was a last resort
after protesters blocked traffic.
Last December, villagers rejected
compensation offered for their land. The acquisition was canceled.
“We do not want to obstruct the
progress of the nation,” Mr. Prakash said. “But this is not what we asked for.
When Modi said good days were ahead, this is not really what we thought he
meant.”
The opposition Congress party, though
weakened by last year’s defeat, is seeking to capitalize on farmers’
discontent, which grew this year because of bad crops. The land-reform fight is
threatening to derail other Modi priorities, such as easing restrictive labor
laws.
“They underestimated the level of
opposition,” said Sasha Riser-Kositsky of the Eurasia Group.
Another problem for Mr. Modi: Many
of India’s bottlenecks in building rural roads, providing drinking water and
starting new businesses aren’t his to solve. India’s 29 states retain broad
powers.
Neelkanth Mishra, a Credit Suisse strategist,
said his client presentations now include a map of India with each state
labeled with the name of the country whose population is most similar.
Maharashtra state’s population of 110 million makes it the size of Mexico.
Uttar Pradesh, with 200 million people, is like Brazil.
“For one person sitting in Delhi to
change Brazil, Mexico, Japan, Germany, France, Turkey and Canada in six months
or one year is, I think, a completely irrational expectation,” Mr. Mishra said.
Ravindra, a 25-year-old
clothing-maker employee outside New Delhi who goes by only one name, said he’s
glad he voted for Mr. Modi. Corruption isn’t as bad now, he said.
But he is still waiting for the
great leap in living standards he felt he was promised. The government-run shop
where his family buys subsidized grain remains badly managed. Roads are
crumbling.
“We can’t blame Modi for anything,
but we can’t give him high marks,” he said.
Source : http://www.wsj.com
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