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RICHARD YETSENGA, CHIEF ECONOMIST, ANZ | JULY 2019
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The Indian government’s strong mandate for reform sets the country up well for the long term.
These are interesting times for India. Among large economies right now very few have the potential for delivering positive and lasting reform like India does.
The ingredients are all there. Growth in the country has admittedly slowed, driven in significant part by banking sector changes and credit constraints.
But the current political landscape includes a newly elected government with a very strong mandate for reform – and the ability to drive it. I think that sets India up strongly for the long term.
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“Among large economies right now very few have the potential for delivering positive and lasting reform like India does."
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ANZ Research recently downgraded its growth forecast in the country to 6.5 per cent in fiscal 2020 – which is still quite an enviable figure.
India, like most economies, is looking outwardly at the global trading environment and trying to work out what it means for them.
Domestically the biggest issue though really is that the growth story has slowed and surprised on the downside. There's a lot of focus on reform as a result.
Drivers
I do feel however there has been insufficient focus on the key drivers of the slowdown. Non-performing loans in the banking system are quite high - about 10 per cent of all assets - and that's constraining credit growth.
The government's response to that has really been to focus on reform and get the productivity side of the economy moving. This is a very laudable goal and there is a lot of progress underway.
The sense of political transition in India is one of the things setting it apart from a lot of global economies right now. That's a really positive part of the story.
Against the growth environment the challenges are large and one response has been to really increase openness towards inbound offshore investment and encourage foreign companies to come in more aggressively.
Historically I think India has always had that goal although in the past it has asked companies to come in on India's terms. This time the government seems much more willing to meet offshore business half way. I think it will take some time for that strategy to bear fruit.
Richard Yetsenga is Chief Economist at ANZ
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