As the Modi government nears its second anniversary, Standard Chartered today said the pace of policy changes has been “more gradual than initially expected” so far and more concrete measures are still awaited to expand manufacturing and create jobs.
The global financial services major said India needs structural reforms like Goods and Services Tax (GST) implementation, supply-side measures for food-price stability and banking-sector reforms in order to move sustainably to higher growth trajectory.
“Measures to increase financial inclusion, enhance the efficiency of subsidy disbursal, increase railway investment, and foster ‘competitive federalism’ (increased competition between states), while incremental in nature, and are likely to lead to eventual growth gains,” Standard Chartered said.
It also said that the implementation of the GST, the most widely anticipated pending reform is unlikely to be “smooth”.
While the ruling party is likely to gain more seats in the upper house of parliament in 2016, it may still fall short of the two-thirds majority required to push through the GST legislation.
“The government will need to build political consensus with regional parties ahead of elections in India’s largest state,” it said.
The BJP-led NDA government assumed office on May 26, 2014 with a thumping majority in Lok Sabha, but some key bills including the one on GST have been stuck in Rajya Sabha due to opposition from some other parties, mainly Congress.
Standard Chartered said the pace of policy changes has been more gradual than initially expected, although they are moving in the right direction.
It observed that progress in areas like GST implementation, supply-side measures to achieve medium-term food-price stability and banking-sector reforms has been slower than expected and progress in these fields are needed to achiever higher growth.
Moreover, more concrete measures to expand manufacturing base and create jobs are still awaited, it said, while noting that India needs to create 10-12 million jobs annually in order to enjoy a demographic dividend.
The global major said a clear pick-up in the investment cycle is likely only with a lag. External and domestic factors like slow export growth, high corporate leverage, excess capacity and the clean-up of banks’ balance sheets, are likely to continue to curb private investment, which is crucial to a sustained growth revival.
Meanwhile, public investments are also likely to see an decline due to fiscal constraints, the report added.