One year later, India's economy brightens under Modi

One year later, India's economy brightens under Modi

One year later, India's economy brightens under Modi

Mandakini Gahlot, Special for USA TODAY

NEW DELHI, India — When Narendra Modi became prime minister a year ago on a promise to revive India's once-sparkling economy, inflation was running at 9% and economic growth had slowed to less than 5% — half the pace of two years earlier.

Today, inflation is down to 5%, and the International Monetary Fund forecasts India's economy will grow 7.5% this year, outpacing China's growth for the first time since 1999.

That turnaround is winning praise from an increasingly influential business community, which helped Modi and his Bharatiya Janata Party (BJP) win the first outright governing majority in three decades.

"The five years before Prime Minister Modi took over were really bad," said Vineet Mittal, vice chairman of Mumbai-based Welspun Renewables, a wind and solar energy company.

"When we traveled abroad on investor roadshows, we wasted a lot of time allaying doubts," he added. "Potential investors had a lot of apprehensions. All they heard about India was a constant string of corruption scams and crony capitalism."

Mittal was among a delegation of Indian business leaders who joined Modi on recent trips to Germany and China to spread the word that India is open for business.

India's $2 trillion economy will remain much smaller than China's $10 trillion powerhouse for years to come. But, boosted by low oil prices — the country imports 80% of its oil — the world's largest democracy and its young, skilled population have plenty of room to grow.

International Monetary Fund Managing Director Christine Lagarde, who visited India in March, said the country is "at the top of the list" of countries that have benefited from the drop in oil prices, calling it "a huge windfall."

However, she also credited Modi's push to advance India's economy, which critics say has long been hampered by anti-business policies and inefficiencies. "He's on the right track, addressing all the right issues," she told USA TODAY.

During his first year in office, the Indian prime minister visited 19 countries on trade missions, including an appearance before an American-Indian audience at Madison Square Garden in New York. He also has visited China, Germany and France. Everywhere, he paints India as welcoming investors.

"I am here to assure the German companies that India is now a changed country," Modi said at the Hannover Trade Fair in April. "Our regulatory regime is much more transparent, responsive and stable and we have removed a lot of regressive taxation regimes."

His remarks were aimed at puncturing long-held views of India as a country with a byzantine, bloated bureaucracy and rigid regulations that make it exceedingly difficult to do business in the country.

On Tuesday, Modi pledged to change India's tax system. On a trip to South Korea, he told business leaders the government has already addressed tax issues affecting foreign investors and would focus now on making the tax system "more stable, predictable and transparent."

Modi has specifically pushed to bring manufacturing jobs to India, mimicking China's path to industrialization, including undercutting Chinese workers with lower wages.

This year, under his "Make in India" policy, he helped persuade Korean giant Samsung and Europe's Airbus to open new factories in his nation. With around 1 million young Indians entering the workforce every month, creating jobs is a constant priority.

Some analysts remain skeptical of Modi's goal to turn India into a manufacturing hub for foreign companies. "I am not entirely sure whether 'Make in India' will lead to the right kind of growth or whether it will be sustainable in the long run," said N.R. Bhanumurthy of the National Institute of Public Finance and Policy in New Delhi. "It makes us too dependent on external demands. India has a huge market and the prime minister should capitalize on that and address the country's demands."

Modi also has run up against some political obstacles at home. He's failed so far to enact a controversial land bill that he claims would make it easier for companies to acquire and develop property and create jobs.

Leading the opposition are Sonia Gandhi and Rahul Gandhi, the mother and son who lead the rival Congress Party. They're portraying Modi's plan as a land grab that hurts farmers. Agriculture employs half of India's workforce.

The land bill has become symbolic of Modi's failure to deliver blockbuster pro-business changes despite the excitement he generates among business-minded elites around the world, analysts say. India's insurance and pension systems, for example, remain tangled and opaque. The country faces massive fiscal and environmental hurdles, too.

"Recently a lot of (investors) have been complaining that not much has changed compared to the previous year," said Rahul Sharma, managing director of Neev Capital, an investment advisory firm with offices in London and New Delhi. "As global investors, they are starting to become impatient. There's a lot that needs to be addressed: infrastructure for one, taxes for another."

Sharma admitted, however, that investors need to be patient. "For many of them, things just aren't changing fast enough," he said. "But I think some investors had fairly unrealistic expectations from Modi to start with. Big changes don't happen overnight."

Modi's tight grip on power have also hindered his progress, Sharma added. "One problem is Modi's thrust on centralization of power," he said. "He just doesn't delegate enough, possibly because there aren't enough trustworthy people to delegate to. But that contributed toward slowing down progress."

Still, businessmen such as Mittal like to focus on the bottom line. For him, good times have arrived.

"In 2014, we barely had any projects in hand even though renewable energy was an important area for the India government," Mittal said. "Now, we have more than we can handle, and expect our projects to double over the next 12 months. Projects are awarded faster, cleared faster and payments released on time."