India’s Lashed Lazy Habits
Indian stocks after a 2014 20 percent MSCI gain on record $15 billion foreign investor inflows sold off as the parliamentary session ended without passage of tax, land and insurance reforms, although prime minister Modi used his decree power for temporary approval before the body reconvenes in several months. The measures blocked by the upper house where the ruling BJP coalition is a minority would introduce a national VAT levy, lift international life and non-life participation from 25 percent to 49 percent, and ease consent and compensation rules for rural infrastructure development. To build momentum for another push the economic team is pressing initiatives to promote manufacturing and reduce “lazy banking” in Modi’s words though $25 billion in partial state lender divestitures, around half of estimated system recapitalization needs to meet new standards and handle the true 10 percent-plus NPL total. He hinted at senior management changes and promised less government interference in operations to accompany the transactions. In manufacturing the charge is led by a technocrat formerly with consultants McKinsey and aims to double its current 15 percent share of GDP to lift 5 percent growth. The China and East Asia model will be shunned in favor of “bottom-up innovation” for emerging industries like solar. The Power Ministry will support $250 billion in renewable energy projects through end-decade under the plan which also allocates $100 billion for rail and transport to encourage spinoffs and eliminate bottlenecks. Chief economic adviser Subramanian, recruited from the Peterson Institute in Washington, may advocate looser fiscal policy for the drive as the central bank monetary stance may also relax with the latest 5 percent consumer inflation reading. However rupee weakness ,the persistent current account deficit and privatization glitches as with the resumed Coal India attempt facing worker protests may delay such moves as the administration has also been busy with overseas engagement. At the WTO it allowed a trade facilitation pact to proceed after initial scuttling and a high-level dialogue was recently held with the US with Secretary of State Kerry lauding progress in the prime minister’s home state of Gujarat.
Traditional close ties with Sri Lanka may in turn be restored after the surprise 51-49 percent defeat of two-term President Rajapaska by opposition alliance candidate Sirisena, his former Defense Minister who led the final anti-Tamil rebel campaign in the decades-long civil war. The regime had cultivated $5 billion in Chinese loans and commitments post-conflict with a $500 million container port just completed with a nearby $1.5 billon reclamation project underway. Reconstruction, tourism and agriculture underpin 7 percent growth, and despite high fiscal and current account deficits and the absence of an IMF program consecutive sovereign bond issues were oversubscribed. The incoming President drew backing from an anti-incumbent wave of groups and parties without a common agenda but he vows to reverse the post’s authoritarian bent and investigate the Chinese ventures for possible corruption. After a 15 percent MSCI climb last year the stock market surged on opposition victory, as UN human rights investigators continue to delve into alleged habitual abuses in his old capacity.
