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Sun 10 May 2015 09:59 AM

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Why India is now ‘the most exciting wealth creation opportunity on the planet’

It has lingered as the third-largest Asian economy since economic liberalisation nearly 25 years ago, but now Narendra Modi’s pro-business government is pushing hard to propel India to new global heights.

Why India is now ‘the most exciting wealth creation opportunity on the planet’

India is on a mission.

“Our real economic destiny is to be the economic engine for the next 5 billion, 6 billion people on the planet, just like the US is the economic engine for the top 1 billion people on the planet [today],” Minister of State for Finance Jayant Sinha tells Arabian Business in an exclusive interview in Dubai.

With the world’s second-largest population (1.2 billion and rising fast), a tradition of entrepreneurship and an economically liberal government willing to make the tough regulatory changes required to transform, it is not a far-fetched idea.

But one thing is certain: India will not be able to do it alone. To start with, it needs hundreds of billions of dollars to invest in its poor, dilapidated or non-existent public infrastructure.

The Bharatiya Janata Party (BJP) government, under pro-business Prime Minister Narendra Modi, has been quick to initiate significant economic reforms to attract both foreign direct investment (FDI) and domestic private participation.

Local and foreign businesses, as well as wealthy foreign governments, are being lured into the India story with a coercive pitch that goes something like: “What I tell people is that, if we’re able to get onto a non-inflationary, sustainable growth path of 7 percent a year of real GDP growth over the next 10-15 years, India’s economy will go from $2 trillion to $5 trillion over the next 15 years,” Sinha says.

“So there will [be] wealth creation in India of $3 trillion over the next 15 years and that I think is the most exciting wealth creation opportunity on the planet, bar none.”

He continues: “The scale, the scope, the returns that you can generate from India as an investor are extraordinary and this is the story we’re telling people — look at India right now.”

That “now” is being heavily emphasised in the message; the Modi government is doing everything it can to differentiate India today, and in the future, from the recent past under the comatose Congress Party. During its second term (2009-2014), the Congress repeatedly said it had a $1 trillion infrastructure budget, yet little was actually spent and private contractors were backing away, while banks were heeding advice from the Reserve Bank of India to avoid such projects.

The estimated backlog of investment in power plants, factories and mines awaiting approvals reached $392bn, according to Project Monitoring Group, a government body.

“When I speak to people right now, people are scarred by what happened under the previous government, they’ve been scarred by the dysfunction, they’ve been scarred by the corruption and they’ve been scarred by the stagnation of the last decade or so,” Sinha, whose father Yashwant Sinha also served as economic minister in 1990-91, before economic liberalisation, and again in 1998-2002, says.

“But we have a very, very historic and unprecedented opportunity in India now because of the extraordinary leadership of our Prime Minister Narendra Modi. We’ve got a decisive mandate from the people of India — that has not happened before in 20 years.

“And the global economic environment, because of the decline in oil prices [and] the decline in commodities, has given us a set of tail winds that really enable us to be able to say to people that this is an unbelievable and attractive investment opportunity.”

Some are already listening. Foreign direct investment (FDI) increased 26 percent to $35bn in 2014, against the global decline of 14 percent, according to the UN Global Investment Trends Monitor. Already, $13bn was invested in the first quarter of 2015, according to the Indian Ministry of Finance.

The oil-rich Gulf states are among India’s top targets for FDI. Officials already are in progressed talks with the UAE and Qatari governments and preliminary discussions with Saudi Arabia to invest in infrastructure funding mechanisms, Sinha says.

“We have a few projects that we think they’d be interested in. They’ve already visited us and met with us,” he says. “Part of my visit is to take the next step forward [towards a] high level set of discussions to get a lot more specific about the terms and conditions and structures which would be of most interest.

“The goal for us right now is to try and see what we can do in terms of attracting more investment flows into infrastructure; specifically, there’s a range of infrastructure financing agencies, which include the railways, the national housing board, the agricultural credit organisation and national investment fund — a range of agencies where we would be happy and would very much like to encourage participation from the Gulf, particularly from our very good friends here in the UAE. We would like it to be in the billions, so that it is of significance and importance to both sides.”

The Modi government also has announced a raft of economic reforms intended to boost development in the country, from easing corporate tax and red tape to transferring 20-25 percent of ministry budgets direct to states and introducing a land acquisition bill that gives the manufacturing sector precedence over agriculture for the first time in India’s history.

“Let me give you what’s really ‘big bang’ and radical about what the government has done: we’ve completely changed the fiscal architecture of the Indian state. This is a huge and radical move that we’ve made,” Sinha says.

“Rather than keeping a lot of money with the centre, we’ve taken that money and allocated it to the states unconditionally, with no strings attached, so a lot of the spending and a lot of the work of the government now shifts to the states, the states can be a lot more responsive and a lot more focused on what people actually need. That’s a big thing to happen in government.

“Secondly with respect to the fiscal architecture, we’re introducing the goods and services tax [GST] across India. It will subsume sales taxes, excise taxes [and] entry taxes, across India’s 30 states and eight union territories into one unified, single tax which is paid at destination; that is truly a game changer for indirect taxation in India.

“Number three, we’ve changed how you think about direct taxes and as far as individual taxes are concerned, we’re saying to individuals ‘no more non-compliance, if you’re not going to pay your taxes we’re going to come after you in a very punitive way,’ so we think that will  increase tax compliance.

As far as corporate tax is concerned, it will go from 30 percent to 25 percent, so we’re bringing down… but more importantly, we’re getting rid of a whole bunch of exceptions and those exceptions had only resulted in litigation, disputes, harassment etcetera.

“So the fiscal architecture of the Indian state, in one fell swoop, we’ve changed.”

But given Modi’s resolute election platform, with economic reform at its very core, naysayers have argued progress has been slower than expected.

“I would say they’re very ill informed and misguided in their views,” Sinha says of the Modi detractors. “What we’ve done in the last [year] is extraordinary by any measure and the reforms we’ve undertaken unfortunately have not got the coverage they should have.

“The problem is when you go and talk to the press, the press has a little check list of four things and if you haven’t done these four things, you haven’t done any of the big ticket things. No, no, no, we’ve done a lot of those four things but we’ve done some amazing things that nobody is paying any attention to.”

One of the government’s hardest tasks — both to achieve and to wash over if it fails to do so — will be generating the 12 million jobs annually that India needs to become a globally dominant economy. That is more than the populations of over three quarters of the world’s countries. 

“It is a daunting task,” Sinha concedes. “The single biggest challenge is that we skill and develop our young people so that we can have them be employable and be able to create the jobs so that they can become productive in the workforce.

“The second big challenge that we face is to ensure that our institutions are equipped for this very dramatic and fast growth, which is in fact not even a political necessity but a moral responsibility that we have to our young. So our institutions have to be upgraded and strengthened and revitalised so that they can support them.”

The government has identified four main sectors it will target for jobs growth, and subsequently economic growth. They are infrastructure, tourism, manufacturing and agriculture and agricultural processing.

Export industries, particularly information technology, also will be vital contributors. 

“It’s a tall order but we’re determined to work towards [creating 12 million jobs],” Sinha says.

Inevitably, the pure number of jobs needed means tens of millions of Indians will continue to migrate abroad to find work. There are already more than 10 million in the GCC alone and there are more Indians than citizens in Qatar and the UAE.

“Obviously the diaspora of Indians… makes very important contributions to India and to their communities; they’re a very vital partner in our progress and we absolutely have to do that [migrate for work],” says Sinha, who himself spent 20 years studying and working in the US alongside Reserve Bank of India governor Raghuram Rajan.

“Obviously, the workers — both the highly trained and highly qualified workers that we send to Australia, the US and elsewhere as well as the workers who are here in the Gulf doing the less highly qualified work — are extraordinarily important. They’re an integral part in this progress, in many ways.

“Our remittances are $70-75bn a year, but more so than the remittances, they are our ambassadors globally, they’re the people leading investment in India, they’re bringing know-how and expertise [and] people like me return from the US to come back and serve our country.”

But not all Indian expats enjoy their experience abroad. GCC governments and employers have been routinely criticised for the treatment of workers, particularly those on construction sites or in domestic roles.

In many cases, Indian workers’ passports are confiscated by their employers, thousands have complained of unfair and dangerous work practices and dozens die on construction sites each year.

At least 277 Indians died in Qatar last year, according to the Indian Embassy in Doha, which also said there were more than 3,850 complaints relating to labour and welfare issues.

The Indian Embassy in Kuwait in 2013 also asked for a six-month grace period for residency violators and urged authorities to stop “harassing and arresting” Indians with valid documents, according to the Kuwait Times.

Embassy officials claimed some of its citizens in Kuwait were missing after being arrested, with authorities either failing or refusing to provide details of their whereabouts.

In Saudi Arabia, thousands are detained or deported annually for alleged visa violations.

Sinha is diplomatic when asked whether the Indian government needs to do more to improve the conditions of its citizens in the GCC.

“Obviously we’re very sensitive to those concerns and we’ve consistently brought up these issues with the local governments,” he says, adding that the GCC leaders are India’s “very good friends”.

“We spend a lot of time with the union community as well, understanding their concerns, but in all of these matters it’s about collaboration, it’s about working together, and that’s the mind-set in which we approach this issue.”

Indians, alongside other expat communities such as Pakistanis, Nepalese and Bangladeshis, have literally built much of the GCC’s dramatic increase in infrastructure in the past 50 years. Many of the world’s tallest buildings, hundreds of hotels, railway networks, airports and trade zones — essential contributors to the region’s phenomenal economic performance — exist because of Indian hands.

“It’s extraordinary when you’re in Dubai and you see how fast construction is happening and how much is happening in this part of the world. Obviously Indian workers and people have been very, very major partners in that,” Sinha says. “It’s a matter of great pride to all of us.”

Yet, ironically, while its men have been building the GCC, India’s own infrastructure has been wanting. But Sinha insists that is changing under the Modi government.

Having read each of the national budgets since economic liberalisation in 1991, Sinha says the Modi government’s first, released in February, includes ‘20 big ticket items’ certain to dramatically elevate the country’s development.

“I’m very hopeful that as we do that we will in fact be able to build the India of our dreams, an India that is globally competitive, but an India that is also innovative,” he says.

“We have the entrepreneurship, we have the companies, we have the financial system, we can really do that and the 20 big ticket reform measures we put in place are firmly positioning us to do that.

“This is an historic, unprecedented opportunity. This is a once in a lifetime opportunity.

“I left the private sector after 25-30 years of being there because I thought that this was an incredible opportunity and I didn’t want to say to my grandchildren, that when it happened I was back in America in the private sector. I wanted to be able to say I was there, I contributed and I made a difference.”

Just what that difference will be will depend on not only Modi and his government, but the appetite of international investors.

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