he Indian economy is a super giant, which moves slowly but surely.” – Arun Jaitley, Indian finance minister.
After starting the year perpetually commenting on the gloomy tidings of the Greek crisis, Isis, and Putin, it is with palpable relief that I turn to what remains the single most positive international development of recent months – the re-awakening of the Indian giant.
While it is true that the government in New Delhi has confusingly just altered how it calculates GDP, that should not swamp the far more germane headline that India is economically on the move again, startlingly out-pacing even China in terms of growth, and set to do even better in the years ahead.
Wily old finance minister Arun Jaitely, one of the few members of the ruling BJP with experience navigating the shark-infested political waters of the capital, unveiled the Modi government’s first complete budget over the weekend. By New Delhi’s estimates, the country will grow at a pace of 7.4 per cent this fiscal year, and is set to rocket to a more-than-healthy 8-8.5 per cent rate of growth in 2015-2016. Reversing the last years of the Congress Party’s economic torpor, that makes India easily the fastest growing major economy in the world. And for all the rightful niggling about the budget that follows, that – and that alone – is the story here.
True, as the candid finance minister makes clear, this budget does not amount to another “Big Bang”. It doesn’t follow in the footsteps of the revolutionary budget of 1991, when then finance minister Manmohan Singh finally took on India’s stultifying “License Raj”, unshackling the country and setting it firmly on the path to exceptional rates of growth.
In terms of delaying shrinking the central government’s deficit, and not going further with structural reforms, especially regarding the country’s welfare schemes, it is disappointing. But given the headline growth rates, the BJP budget is still unambiguously business friendly, and is more than good enough to keep the country moving in the right direction.
First, it provides for a further $11.4bn over the next year for desperately-needed infrastructure projects, to begin making India’s dilapidated roads and railways fit for purpose for the new era, a fundamental step forward. Second, the government pledges to lower the corporate tax rate by 25 per cent over the next four years, in an effort to increase investment in the country. This is a long-overdue move which the still socialist-tinged Congress Party shrank from while in office, and it is refreshing and highly encouraging to see the new government move so quickly on what amounts to an economic no-brainer.
But the canary in the coalmine – which signals that the Indian takeoff will not amount to a false mirage – is the government proving itself ready to put a firm date to the completion of its epoch-changing goods and services tax. The new national tax on goods and services will increase revenues while in essence finally completing the Indian common market, as up until now different states have had a confusing and diverse series of local taxes in its place.
The local protectionist dragon that has for so long stymied Indian growth will at last be slain. Finance minister Jaitley has rightly made this his priority. By April 2016, the new tax is scheduled to be in place and India will finally function as a holistic economic entity. If this comes to pass, it will amount to the next “Big Bang” so desperately sought out by international investors, just as India – as this column has long argued – will secure its place as the next big thing on the global economic and political stage.
The good news heralded by this more-than-good-enough budget goes to a larger point. As I have argued before, the Brics concept – that a series of uniformly ascending emerging markets are set to dominate the world – obscures more than it reveals. In the clear light of day, it is now apparent that some emerging markets such as India and China are indeed on the path to long-term economic prosperity and global relevance. Other Bric countries – Brazil and South Africa – are in genuine danger of not fulfilling their economic promise (you can stick a fork in Russia, the fifth Bric state).
In other words, this column was right and Goldman Sachs was wrong; only by disaggregating the Brics – and not clumsily intellectually lumping them together – can you make sense of the confusing world we find ourselves in. The very good news coming from India merely confirms this.
Dr John C Hulsman is senior columnist at City A.M. He is a life member of the Council on Foreign Relations, and author of Ethical Realism, The Godfather Doctrine, and Lawrence of Arabia, To Begin the World Over Again. He is president and co-founder of John C Hulsman Enterprises (www.john-hulsman.com), a global political risk consultancy, and available for corporate speaking and private briefings at www.chartwellspeakers.com.