News wrap: Business hopes pinned to the new government

Recent media reports in India have noted the positive mood in the business community around the elections. International investors are also counting on the elections to bring change, though not all are optimistic. reported on the results of a survey of Indian CEOs conducted by Assocham and quoted Secretary General D.S. Rawat.

“The survey showed that the expectation level was spread across major sectors of the industry in particular but the maximum optimism was seen among those engaged in financial services, banking real estate and consumer goods.”

“As many as 54 per cent of the respondents in the survey said though issues like inflation and revival of economic growth will take long, they still expect some major morale-boosting announcements from the new regime in New Delhi in terms of reforms that will promise ease of doing business, unclogging of infrastructure projects stuck for environmental clearances.”

“’The run-up in the stock markets in the last few months is another pointer to a huge level of expectation. Our survey shows that at least in the last 20 years, there was never such level of expectations from a new government,’ said Assocham secretary general D.S. Rawat.”

BusinessLine reported on the Assocham survey, as well as a related Ipsos survey, which found that India’s business community was hopeful as the elections unfolded. 

“Indian companies are already setting out agendas for the new Prime Minister, and expect the new Government to revive economic growth, fix inflation, bring down interest rates, and tackle unemployment.”

“Expectation levels are soaring by the day among different segments of the economy, with stock markets, industry, trade, multilateral institutions and foreign investors seeing a massive change. Even heads of diplomatic missions are pinning their ‘excessive hopes’ on the next Government.”

James Crabtree, writing in the Financial Times, also notes the optimistic mood in India around elections. However, he contrasts this optimism with the frustration felt by many international investors.

“With election results due next month and Narendra Modi likely to become prime minister, the country is enjoying one if its periodic bouts of optimism. Stocks have hit record highs, largely because foreign fund managers are pouring in cash.”

“But for global companies operating here, or those considering coming, the mood is more glum. Bruises left by years of weakening growth, dithering leadership and volatile regulation are proving slow to heal. If India wants to attract more foreign investment, it has its work cut out.”

He notes that in some respects, uncertainty is par for the course in emerging markets.

“Emerging markets are not meant to be easy. Plenty of companies complain about unfair rules, but cleverer operators find ways to make Indian investments work.”

He concludes by classifying the challenges in India as broader than any one company, and prescribing the actions India should take to encourage foreign investment.

“Yet the broader problem is not so much the individual headaches faced by particular businesses, but the cumulative impact of all of them together which has left the sense that India is more trouble than any profits are worth.”

“If India wants more foreign projects, it needs mechanisms to help those that become disrupted through no fault of their own. The country’s recent record as an investment destination has been poor. It will take more than words to put it right.”

In The Hindustan Times, NK Singh describes the steps that should be taken by the next government to improve the ease of doing business in India for foreign investors.

“The 12th Five-Year Plan is now outdated. A mid-term review is due anyway and should receive priority. It should be discussed more meaningfully in the National Development Council than in the past. States need to be fully involved to optimise benefits from large public outlays. This also implies revamping the Centre-state relations and activating the dormant Inter-State Council.”

“Second, on the structural side some key sectors of the economy need decisive action: The power sector has a problem of fuel shortage; improving the financial health of state electricity boards and timely tariff revision…The coal economy needs to be run on market-based principles and open competitive auction will enhance competition and productivity.”

“Infrastructure needs an independent regulator with a dispute resolution body…The petroleum sector needs better aligning of fuel prices with market price…The health of the banking sector is suspect.”

“Third, the new government would inherit a wide variety of entitlement-driven laws that may be difficult to change. So within the existing laws some changes need to be effected; in the MGNREGA enhancing capital-creating assets and linking wages to productivity; allowing flexibility to states on labour laws, as well as in the implementation of the new Land Acquisition Act; exploring alternative delivery mechanisms for the Food Security Act and seeking improved outcome under the Right to Education Act.”