As such we expect the Finance Minister to give some leeway with a relaxation in his previously announced fiscal targets. Indications are that increasing the previously stated two year 3% budget deficit target to say, 3.4% of GDP, would allow the government to increase its spend on infrastructure projects. While this should not be a concern per se, the Ministry of Finance’s figures are based on key assumptions in nominal GDP growth and are dependent on significant variables – the price of oil, inflation and the introduction of the Goods and Services Tax (GST) in mid-2017.
Setting aside the remarkable acceptance of the pain of demonetisation, there is an underlying strategy which is fundamentally sound, and which we applaud. Namely, that the introduction of greater transparency in the way the Indian economy works by moving transactions involving individuals, the private sector and the public sector onto a digital platform.
There remains much discussion and enquiry around the topic of Brexit. Prime Minister Theresa May has been more explicit as to the process and has said that a White Paper will be published outlining further details. With the index of ease of doing business in India improving it is becoming easier to do business in India. Not surprisingly, GST was identified as the single most effective reform in this process. Key areas of strength in India were ranked in area of priority as “availability of skilled labour”, “telecoms facilities”, “availability of support and service providers”. Power and ease of getting a connection continued to be seen an issue.
The first week of President Trump’s administration demonstrates the changing and unpredictable dynamics that increasingly exist in international trade. The interplay of potential corporate tax reductions, increased import tariffs as well as more rigorous visa policy is already having a very profound impact. It is reported that Indian BPOs are already examining their plans. The 300,000 to 350,000 Indian H1B visa holders in USA are voicing disquiet.
The statements and actions out of the White House are startling. They fly in the face of previous conventional wisdom. It is entirely possible that the result of President Trump’s statements is that products made by US companies exporting or indeed manufacturing in India become more expensive and less competitive. And all of this is happening against the background of Industrial Revolution 4.0.
At the end of the day, succeeding in India is all about intelligence, judgement and risk.