India on course of fiscal consolidation with better policies: US official
By PTI | 8 Apr, 2016, 12.19PM IST
WASHINGTON: Indian policymakers have moved "aggressively" to reduce inflation, improve external stability and put India on a course of fiscal consolidation, a top US official has said, praising policy improvements that have strengthened investors' confidence in the country.
Low oil prices have undoubtedly been supportive of growth, but policy improvements have helped strengthen investor confidence in India's macroeconomic stability, said Under Secretary for Treasury Nathan Sheets.
In his remarks before Carnegie Endowment for International Peace - a top US think-tank, which this week launched its India centre in New Delhi - Sheets praised Prime Minister Narendra Modi for identifying infrastructure as a prime objective for growth.
"Through the decisive actions of Prime Minister Modi's government and the Reserve Bank of India, India has strengthened its macroeconomic fundamentals," Sheets said.
"Indian policymakers have moved aggressively to reduce inflation, improve external stability, and put India on a course of fiscal consolidation," he said.
The Modi government took office facing twin deficits and high inflation, in an environment where investors were focused on the vulnerabilities that might arise in emerging markets in the event of a shift in the stance of monetary policy in advanced economies, Sheets said.
"The Modi government's sustained focus on improved governance and the private sector as an engine of growth is an important innovation in the trajectory of policy," Sheets said.
Modi has underscored his determination to make India an easier place to do business, and the US is encouraged by the government's focus on creating conditions for entrepreneurs to grow their businesses and create employment, he added.
"There is a well worn cliche that 'India grows at night' - that is, when the government is closed. One cannot expect to see fundamental changes immediately in a country as complex as India, but India deserves credit for changing the tone at the top," he said.
"We are impressed with the decision of the federal government to provide Indian states with greater authority to shape their economic futures," Sheets said.
India's more dynamic states - some of which are larger than major emerging market economies - now have greater scope to independently implement policies that improve business conditions, attract investment, and create jobs, he said.
And while it is not a new priority, the government has identified infrastructure as a prime objective for growth, Sheets said.
The budget has included greater financing for infrastructure over the past two years, and the government has cleared stalled projects and funded new initiatives in roads, railways, and other transport, he said.
Infrastructure spending should also help create opportunities and incentives for increased private investment, the Treasury official said.
At the same time, the US official called for speeding up some of the other reforms including those in the banking sector.
Broader banking sector reforms, whether through privatisation, consolidation, governance improvements, removal of priority sector lending requirements, or resolution of non-performing loans, are also needed to help kick-start credit expansion, he said.
A vibrant banking system that supports increased investment and financial inclusion, and, in turn, increased employment, benefits all parts of the Indian economy, he argued.
Observing that low oil prices have provided the perfect opportunity for India to reform its inefficient fossil fuel subsidies, Sheets said consistent with this observation, India has moved in recent years to cut subsidies on diesel and gasoline.
Such efforts help achieve the important goals of supporting the health of public finance, reducing India's external vulnerabilities, and contributing to the G-20's mutually agreed climate priorities, while protecting the poorest, he said.
India on course of fiscal consolidation with better policies: US official - The Economic Times
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Good News for Modi: Only a Third of India Projects Delayed
Vrishti Beniwal vrishtibeniwal
April 8, 2016 — 10:05 AM ISTUpdated on April 8, 2016 — 3:20 PM IST
Narendra Modi.
Photographer: Raveendran/AFP via Getty Images
- A third of 1,000 projects valued at $210 billion are delayed
- Persistent cost and time overruns pose risk to India growth
Prime Minister Narendra Modi is starting to see some success in getting infrastructure projects moving again.
About a third of more than 1,000 projects valued at 14 trillion rupees ($210 billion) are delayed as of January, down from 42 percent a year earlier, according to government data released on Thursday. Cost overruns have come down from 19.8 percent to 18.4 percent in that time, it showed.
Modi has made reviving investment a priority since he took office, taking steps to ease bottlenecks and entice foreign companies to set up factories. Yet bad debt, weak global demand and difficulties in pushing through key reforms threaten to hobble the world’s fastest-growing major economy.
“Many of the projects today are stuck because of stressed assets," said Hemant Kanoria, chairman of SREI Infrastructure Finance Ltd. “If someone has gone to the hospital, is taken to the ICU and a quick treatment is not given, the person will die. It’s similar with infrastructure projects."
About 5.1 percent of Indian bank loans have
gone sour as of Sept. 30, more than three times the bad-debt ratio at Chinese banks, as borrowers find investments stuck due to slowdown. Central bank governor Raghuram Rajan has given lenders until March 2017 to clean up their books as authorities identified 8 trillion rupees ($120 billion) of stressed assets in the system.
Delays in land acquisition, environment clearances and contractual issues are some of the biggest roadblocks for India’s infrastructure projects, according to the statistics ministry, which monitors ongoing federal government projects costing 1.5 billion rupees or more. That leads to time and cost overruns.
Weak Demand
The number of stalled projects fell in the past six months due to faster government clearances in the power and chemical industries, according to a report released by the central bank this week. Proposals to set up new factories remained subdued due to demand uncertainty and muted business confidence, it said.
Markets should scale back expectations of a strong cyclical recovery, Deutsche Bank said in a report on April 5, citing data from Centre for Monitoring Indian Economy Pvt., a local research company. It showed that projects are delayed primarily because investors are wary of deploying capital.
"While earlier investors complained about problems with land acquisition, availability of raw materials, and delays with regulatory clearances, those factors do not rank high any longer," it said. "The drag now principally comes from a lack of conviction about demand, locally or externally."
18 Years
About 38 percent of the delayed projects are in roads and highways, followed by power and coal, according to the statistics ministry.
India’s northeast states marred by insurgency have seen cost escalations as high as 800 percent. Mizoram, a small state in India bordering Myanmar, has waited 18 years for a dam that will generate 60 megawatts of electricity and end its power woes. Construction is finally expected to be finished by October after issues over land compensation delayed the project and escalated its cost by almost four times.
Modi defended his record at a Bloomberg event last month, saying that credit growth is picking up and work is starting again on projects that suffered in an economic downturn. Investments worth a total 1.3 trillion rupees were completed in the year that ended March 2015, the highest in at least eight years, according to data from the Statistics Ministry. Projects valued at 978 billion rupees were completed April-December.
Modi has proposed to
increase infrastructure spending by 23 percent to 2.2 trillion rupees this year to support growth in Asia’s third-largest economy. With a plan to narrow the fiscal deficit, however, any downturn in India’s finances would probably lead to cuts in infrastructure outlays before cuts to welfare spending.
India is forecasting growth of as much as 7.75 percent in the year started April 1. The Asian Development Bank projects 7.4 percent, down from the previous year’s 7.6 percent estimated expansion.
Good News for Modi: Only a Third of India Projects Delayed - Bloomberg
Significantly, higher than Pakistan's $15800.
