Modi has India on track to faster growth: HSBCs Kidwai TOKYO -- From Naina Lal Kidwais perspective, Indian Prime Minister Narendra Modi more or less lived up to the hype in his first 100 days in office. The head of HSBCs operations in India took notice of Modis quick move to introduce a goods and services tax, as well as his early efforts to get investment flowing and check the fiscal deficit. She believes these measures have the potential to spur Indias gross domestic product growth back above 7% by March 2016. Kidwai recently sat down with The Nikkei to talk about what Modi has done right since he took power in May -- and what his government needs to improve upon. Edited excerpts from the interview follow. Q: How would you rate Modis performance during his first 100 days in office? A: I think it has been a very satisfactory performance. In terms of policies and announcements, everyone says he has passed with flying colors. I think in terms of vision, direction and the issues they have looked to resolve, the performance has been very, very good. The big difference, and the reason for the current optimism, is not just Modi himself but also the resounding victory of the BJP (Bharatiya Janata Party). For the first time in 25 years, one party has a majority. Naina Lal Kidwai Q: Could you highlight some positive steps Modi has taken? A: Almost within two weeks of taking over, his government committed to the implementation of a goods and services tax. The finance minister has already started meeting with state governments to address issues regarding the GST. I would also give full marks to this government for continuing good programs. Politicians often come in and say, This was introduced by the last government so this is rubbish. One of the projects that was hanging in the balance was the Unique ID Program. Modi came in, understood what was happening and made a clear commitment to continue UID because about 600 million Indians, about half of the population, already have the UID card. To me, when a political party accepts what was good and continues to grow it, it is a sign of maturity. I dont think its about Big Bang announcements; its about making sure that you take all the little steps that add up to the right big picture. Q: What else has Modi done that you see as worthwhile? A: He has committed to reviewing the land acquisition bill, a very tough and very anti-industry sort of bill that came in last year. Modi has committed to a review, especially the part covering procedures. For example, when you go to acquire a block of land, you need 80% of the landowners to agree to sell. We think 80% is a bit too high -- it should be 60%. Then, after you buy land, for 10 years you have to help the families from whom you acquired it. Industrys view is that we are not in the business of looking after farming families. Acquiring land to, for example, set up a factory takes four to five years. That is too long. You can live with even two years. The process has to be made faster. Q: Presumably, the review of the law could help to unlock investment. A: In some cases, stuck infrastructure projects just need a little push. But if we cant get those infrastructure projects sorted out, they will continue to mount as nonperforming loans in banks, which is the other risk we have. If we sort them out, as indeed is happening, then we will have two advantages. One is that we will get the projects we need, and on the other side, it will bring the nonperforming loans back down. Its quite critical. We do need to clear the projects that are stuck, particularly in the power sector and also roads. And Modi is a big supporter of the Delhi-Mumbai Industrial Corridor. Q: Has the Modi government disappointed you at all? A: Surveys have suggested that they could have done more on the tax front. You remember the issue of the retrospective tax on Vodafone? Of course, the greed for taxes is natural because the fiscal deficit is out of control. But that was seen as irrational and unfair. The tax regime of the last government was seen by corporate India as highly difficult to deal with. It was hoped that the current government would act faster on this issue. They have created mechanisms for clarification but its still early days. Q: What impact will Modis policies have on the Indian economy? A: Industry and research analysts believe the GST will add about 2% to the GDP, and we estimate that stuck projects will add 1%. Without reflecting the impact of the GST, we recently revised our growth forecast for the year ending March 2015 to 5.8% from 5.3%, and for the next year to 6.6% from 6.3%. We now estimate that a 7.3% growth rate will be achievable in the January-March quarter of 2016. Q: What risk factors are on the radar? A: Except for global factors, there is very little bad news to expect, because of the commitment to bring the fiscal deficit to 4.1% (of GDP) by March 2015. That is an acceptable fiscal deficit. We believe it is a challenging target but can be achieved, followed by 3.6% the next year. With the GST, revenue will go up. I think the deficit is the biggest risk that offshore investors and rating agencies look at, and right now it does not look like it will get worse. But what we need to do is to actually bring it down; not achieving 3.6%, for example, would be a risk. Interviewed by Nikkei staff writer Yuji Kuronuma
Posted on: Sat, 20 Sep 2014 16:17:19 +0000
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