Indian share markets have been notorious for their short-termism, with bull runs that rarely extended themselves - the last bull run was pre-2008, and since 2009 we have yet to see a multi-year, sustained uptrend.
Such short-term highs compelled investors to be watchful, pulling out their money at the slightest hint of trouble. This has also kept the domestic investor base from growing, as spooked investors would pull their savings out of equities during downturns. Now however, India is seeing some big, underlying shifts in its economy, that could make way for an extended bullish period that continues past FY18.
Delivering on GST reform: After much back and forth between the Finance Minister Arun Jaitley and his state counterparts, and stalling as states demanded compensation for lost revenue, the government finally delivered on GST, with the rollout now set for July 1. This is a landmark reform, one that has been in the making for a decade, which will economically unify the country and significantly improve tax collection. For the first time in its history, India will have a common market where goods and services will have a common rate, regardless of where the transaction occurs. Estimates say that the rolling out of the GST will add upto 2% to India's economic growth.
Agri reform push: The Budget also mooted reforms in agriculture that increased crop insurance, and pushed for a long awaited reform - Jaitley proposed that state governments allow farmers to sell directly to consumers instead of through APMCs. Currently farmers are required to sell their produce only in markets managed by APMCs. Along with unshackling farmers, better irrigation and a push towards crop diversity will hopefully, reduce farmer distress, and the reliance on an increasingly unreliable monsoon.
Taking the air out of a bloated subsidy bill: Through Aadhaar, the government has focused on direct benefit transfers (DBTs) in a big way to managed subsidies and welfare payments. After implementing DBT for LPG subsidies, beginning June, the Rs 70,000-crore fertiliser subsidy budgeted for 2017-18 will be disbursed to companies based on actual sales to farmers captured on point-of-sale (POS) machines and verified through Aadhaar.
Crackdown on bank NPAs: New disclosure norms for banks compelled the banking sector to admit that NPAs were much larger than previously disclosed, and RBI notifications for restructuring debt and converting debt into equity have so far, not had the desired success. The proposal for a bad bank that takes on and manages - with the help of asset firms with expertise in bad debts - the biggest 20 NPAs, needs to be considered. The NPAs have highlighted the historically corrosive lending practices at banks, and the barriers towards improving credit access in the country. The government and the RBI have begun taking steps in the right direction to address this issue.
Strong fundamentals: Lower oil and gas prices are good for the Indian economy, and that looks likely to remain so with non-OPEC producers US, Canada and Russia ensuring healthy supplies. This, and state election results that suggest Indian voters have a strong appetite for reform, are broader factors that have given the Indian economy the cushion it needs for growth.
Of course besides the GST, many of the Indian reforms cited above are either work in progress, or currently proposals on paper. The proof will be in the pudding once these are fully rolled out. Additionally, the use of Aadhaar to improve the delivery of government services and schemes makes a discussion of a privacy law all the more essential, so that citizen information and data are not publicly shared, stolen or misused. There are also concerns, such as the strengthening rupee in a country where exports account for a fifth of our economic production.
Overall however, the direction the government has taken on several critical reforms is heartening. The Indian economy has always had promise - promise that, after an early boost in the 1990s, went unrealized throughout the past decade as China took off. The government's pro-reform, pro-infrastructure budgets, and its unapologetic stance towards growth may be exactly what India needs to finally deliver on that promise.
Photo: Deepak Gupta
