Asdrubal Santana

According to figures published by the International Monetary Fund (IMF), India is predicted to be the world’s fastest growing large economy in 2015. The South Asian country is expected to grow by 7.5 per cent while China, the other big economy in the continent, will grow significantly less at 6.8 per cent.

“India is a bright spot in a cloudy global economy,” as Christine Lagarde, the IMF’s managing director, told college students in New Delhi last March. The statement came after a year of reforms made by the Indian Prime Minister Narendra Modi that transformed this nation into a more investment-friendly destination.

However, Indian authorities don’t seem completely fulfilled about this achievement. “I think we can do better,” said Arun Jaitley, Indian Minister for Finance, in a recent interview with the Financial Times. The accomplishment “doesn’t give me satisfaction”, he says, while comparing how much larger the Chinese economy is to that of India.

That’s why his government is aiming for a more ambitious number than the IMF’s. “We are expecting a growth rate between 8.1 and 8.5 per cent this fiscal year, ” said Jaitley. And, actually, the facts show that they are on track to achieve it.

Since Prime Minister Modi took office last year, several reforms have been implemented. For example, the entire public sector banking system is being revamped by setting up a Bank Board Bureau. This new agency will be responsible for appointments at state-run lenders and will guide banks on mergers and consolidations. The intention is to make the sector more efficient.

Also, the government has put into practice a national investment fund for infrastructure, which will allocate $3bn to this area. The funds are coming from private and public investors and will help to boost the entire industry.

Another initiative is the introduction of the Goods and Services Tax (GST) which is scheduled for 2016. The idea is to help to rationalise a lot of indirect taxation issues for producers.

All of this, along with the reduction of India’s foreign debt and the country’s young labour force, is creating the right momentum for them. 

“India could well assume the mantle of being the fastest growing Brics economy over the medium to long term, which would make it a very attractive destination for investment in new factories and plants by global multinationals,” said Rajiv Biswas, senior director and Asia-Pacific chief economist from the American consultancy IHS.

Despite the promising panorama, it doesn’t mean that everything is completed for India and the government is conscious about this. In a recent interview with the BBC, Reserve Bank of India governor Raghuram Rajan said that it will be “a long time” before India can replace China as a growth engine for the global economy, even if it grows at a faster rate.

These words have special significance after the latest Chinese stock implosion, which reverberated through markets worldwide. In fact, this crisis has been seen by analysts as an ‘opportunity’ for India to become the first economy in the global market.

But surpassing China wouldn’t be enough. “India is one-fourth to one-fifth of China’s size. Even if we can overtake China in terms of growth rates, the magnitude of the effect will be far smaller for a long time to come,” said Rajan.

Nevertheless, although it will take many years to have a new global growth engine, with the new cabinet and the ongoing reforms, India is setting the right route to make it possible.

Asdrubal Santana is a communications specialist whose previous clients include DuPont and Unesco, and a volunteer for NGOs dedicated to promoting human rights and democracy in his native Venezuela. He is currently based in Dublin