Political stability could boost India's economy
Updated
India's Prime Minister Manmohan Singh was scheduled to be sworn in on Friday for his second term after winning a resounding victory in elections finalised a week ago.
Some hard bargaining with smaller parties means the Congress Party-led coalition commands 322 seats in the 543 seat Parliament. The Prime Minister's image as a steady hand on the economic tiller and now the promise of political stability should help India ride out the global financial crisis better than some.
Presenter: Karon Snowdon
Speaker: Adit Jain, Chairman of IMA India .
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KARON SNOWDON: India's economy has been losing ground for almost 30 months. It's growing at around 4.5 per cent. That's down a long way from the 10 per cent of two years ago. There are signs now of a slight up turn, but economist, Adit Jane, was still being cautious prior to the election result. He said then that GDP growth this financial year, might just make it to 5 per cent. But he says now the returning government of Manmohan Singh should give confidence a boost and confidence is a big factor during a slow down.
ADIT JAIN: I think improving sentiments will improve the stock markets and that will create a positive wealth effect phenomena and that will drive consumption. I think most importantly, political stability will encourage new investment to happen, both domestic and foreign. I think there'll be quicker clearances for infrastructure projects and all that will have a ripple factor in driving the overall economy.
KARON SNOWDON: Might it bring forward India's return to much better growth?
ADIT JAIN: Yes, yes, yes, indeed. If we have good governance, stability and a reemergence of confidence in the markets then growth could nudge up to about 5.5 per cent to 6 per cent.
KARON SNOWDON: And that indicates just how important politics can be.
ADIT JAIN: Firstly, there is no strong economic data to suggest that a recovery is around the corner. Exports are still down and the overall economic sentiment, if you like, hasn't relaxed but if you look at the business cycles there is a strong case for a reversal to take place in the course of the next two quarters.
KARON SNOWDON: And given the new Government's stronger mandate, if you like, what do you think that will mean in terms of policy that may have been held up before, or that will be significant for the economy or indeed for business?
ADIT JAIN: I think a lot of reform measures that were intended the last time around had to be put on the back burner because of the absence of a wider consensus in the political establishment, where most specifically the left parties, the communist parties objected to the reform, for example, privatisation or dis-investment from state enterprise, insurance reforms, pension reforms, foreign investment in retail. Now the markets have taken the view that a lot of these reforms which were on the back burner for five years may pop up again.
KARON SNOWDON: The Singh government will have no shortage of political and foreign relations issues to deal with, but Adit Jane says economic reform will have ripple effects. He's hoping the return of billions of dollars of foreign institutional investment that has left the country will be one of them.
ADIT JAIN: I think most importantly we would like to free India's rating which is currently below investment grade. That will move back to investment grade and that will inspire a number of funds to invest in the market.
