Asia Summit—Modi's Second Year: Realism After Optimism

September 25, 2015

A New Prominence for India

Forecasts of 7 percent-plus GDP growth has bestowed boasting rights on India, considering the speed bumps along China’s economic path, the struggles of Brazil, Russia, and South Africa, and the doldrums in emerging markets at large. Prime Minister Narendra Modi is receiving much of the credit. In fact, although Modi is only in his second year, the businessmen on this panel all want to see him serve multiple terms.

As they spoke, they compiled a list of gains beyond GDP growth. Inflation has cooled and foreign exchange reserves have expanded, said Gunit Chadha, co-CEO of Asia Pacific for Deutsche Bank. The capital markets are strengthening and a corporate bond market is “starting to happen in a big way,” reported Edelweiss Group CEO Rashesh Shah. Shivnath Thukral of Essar Group lauded the rise of “competitive federalism,” in which government power is decentralized and the states can cultivate investment more freely.

Additionally on the upside, India is bettering its already key position in technology. Moderator L. Brooks Entwistle, CEO of Everstone Group, noted that Modi will visit tech giants in the United States next week (he’ll also meet with President Obama), and then asked Tata Communications chieftain Vinod Kumar about the state of Indian startups.

Activity is at a new high, the enthusiastic Kumar responded. “The talent that’s going in, the capital being made available to them, and the sheer scale of ambition of some of these players is very promising…. Some of the work they’re doing is very relevant to a global context. These are services that can create global businesses.”

Not all is ideal, the executives admitted. Chadha complained that the financial and political machinery to efficiently attract and deploy foreign capital is lacking. “The missing piece is a mechanism which creates that absorptive capacity to actually put money to work,” he said. “It’s not clear how global capital will find its way to building infrastructure.” Foreign investors encounter numerous barriers involving transparency and corruption, Thukral agreed. “Land acquisition—big problem. State-level corruption—big problem. Security of land deeds is another big problem.”

Thukral is also concerned about the nation’s challenge of generating 15 million new jobs a year. That may be Modi’s toughest task: making good on his promise of a brighter future for India’s youthful masses. If hopes fail in the long run, Thukral warned, India’s “demographic dividend could end up being a demographic disaster.”

But reform in any sphere is difficult, and Chadha counseled patience. Companies can take five or six years to reinvent themselves, he pointed out. It could take at least as long for India to get where it wants to go because “we are talking about the second- or third-largest demography in the world.”