Daily Management Review

Business Leaders Want More From Indian Government As India's Economy Reels From Recent Reforms


At the World Economic Forum's summit here in the Indian capital in New Delhi, executives across India Inc voiced broad-based optimism about the country's economic growth.
And the message that it's time for more game-changing reforms was sent to the government by all of that positivity hand-in-hand.
India’s economy is feeling the sting, as a series of dramatic policies expected to transform the entire culture of doing business is embarked upon by the world's largest democracy.
The gross domestic product growth was pushed to a three-year low in the April-June quarter ahead of July's Goods and Services Tax (GST) implementation and the ongoing pressure has been spurred by demonetization and supply chain disruption before that incident. Sluggish private investment and weak job creation have further compounded the situation.
"We're going through the pain, we'll see whether it takes one or three quarters," said Sanjiv Bajaj, managing director at Bajaj Finserv, which is a financial services firm part of the larger Bajaj conglomerate. "The impact of the net change will be significantly positive. A year down the line, we'll be talking with a very positive feel than where we are today."
He expects GDP to improve as early as the second half of this year, said Adi Godrej, chairman of The Godrej Group, a corporation with interests in real-estate, household items and chemicals.
"This whole question mark about the Indian economy came from weak June growth," he explained. "In the manufacturing sector, the new GST rate was less than the combination of earlier excises, so obviously there was a lower destocking of those items and lower clearance, which affected GDP of that month."
He said that Godrej's various companies will clock in higher sales in the coming months and added that won't be the case going forward.
Shobana Kamineni, president of the Confederation of Indian Industry said that GST can ultimately boost economic growth. "What's going to happen is a reorganization of the entire supply chain network — consolidation of formal retail, movement of goods — the entire transition is for the future, and that's where GDP will kick up at least two points."
For finally unleashing big-bang reforms deemed crucial for modernization, Prime Minister Narendra Modi’s administration was widely praised throughout this week's two-day India Summit. New Delhi introduced a new bankruptcy law late last year to resolve the nation's $150 billion bad debt overhang as it is also cleaning up debt-saddled public sector banks aside form GST. The government says it says the downturn couldn't be avoided and is cognizant of the economic slowdown.
"When you're introducing radical changes, you have to expect unintended consequences of all kinds," Sanjeev Sanyal, principal economic advisor in the department of economic affairs at India's finance ministry, said.
"The only way to introduce something like a banking sector cleanup or GST was to not keep thinking about it but actually do it and fix it along the way — sort of a feedback loop approach. This may look awkward in the short term, but it is the only real way you can introduce major changes in a country like India."