new economy

　　

According to the British Financial Times, since Prime Minister Narendra Modi brought the liberalization agenda and decisive leadership to New Delhi, the foreign direct investment (FDI) attracted by India has grown rapidly. During Modi's 12-year tenure as Chief Minister of Gujarat State in northwestern India, a liberal agenda and a decisive leadership team have been important features of his tenure. According to the Foreign Direct Investment Market Research Company, a data service company under the Financial Times, as of December 2016, in the first two and a half years of Modi’s tenure as prime minister, the total announced greenfield investment reached US$138 billion, only more than that of his predecessor. The $177 billion that Manmohan Singh attracted during his five-year tenure was 22% less.

    According to data from the Foreign Direct Investment Market Research Corporation, in 2016, India attracted approximately US$62.3 billion in greenfield investment, making it the number one destination for global greenfield investment for the second consecutive year, surpassing China (US$59.1 billion) and the United States (US$48.1 billion). These figures only cover announced greenfield investments and do not include acquisitions and other financial items covered by standard FDI revenue and expenditure data.

    Manufacturing accounts for 40% of total investment. Multinational companies such as Lenovo (China), Samsung (South Korea), Coca-Cola (USA) and Volvo (Sweden) have all announced new plans to take advantage of India’s rapidly growing domestic market. India's gross domestic product (GDP) grows by about 7% annually, and India has a large number of skilled labor. The momentum of the influx of foreign capital continues: The southern state of Karnataka announced this month Apple’s plan to set up India’s first iPhone assembly line in May.

    Modi managed to reduce the difficulty for foreign companies to invest in certain economic sectors in India. The so-called "automatic passage" does not require government approval. However, if foreign investment in some sensitive sectors such as defense, air transportation, mining, media, banking, and retail, crosses certain thresholds, it still needs government approval. The Modi government has also advanced other investment-related reforms, such as radical changes to the century-old bankruptcy rules.

    Modi chose this timing purely by accident. India's reforms coincided with its rivals competing for foreign investment in trouble both at home and abroad. For example, the end of the commodity super cycle caused heavy losses to Brazil, South Africa, and Russia.

    Despite the progress, it is still difficult to do business in India. Even in open sectors such as single-brand retail and e-commerce, foreign companies must abide by strict regulations, such as regulations related to minimum self-made rates and technology transfer. India also insists that domestic court rulings are superior to international arbitration, making it difficult for foreign investors to resolve disputes with Indian companies.

    For example, after a problem with the telecommunications joint venture between the Mumbai-based Tata Group and the Japanese Docomo Communications Company, Indian regulators prevented Tata from paying the Docomo Communications Company the agreed compensation.

    According to data from the Indian Economic Supervision Center, headquartered in Mumbai, in the last quarter of 2016, debt-affected Indian companies announced investment projects worth 1,410 billion rupees (approximately US$20.9 billion), which is higher than the average of the previous three quarters. 40% lower. The strict banknote scrapping measures announced on November 8 brought uncertainty, causing consumers and companies to encounter unexpected cash shortages and further inhibiting investment.

    For the Indian government to achieve its mid-term GDP growth target of 8% to 10% per year, FDI is crucial. Finance Minister Arun Jaitli said in his budget submission in February: “(The Ministry of Finance) is considering further relaxation of FDI policies.” Foreign investors are paying close attention to this.

India: Economic growth will rebound from the cash crisis

    The Central Bank of India pointed out that the central bank expects India's economic growth rate to rebound to a high of 7.4% in the fiscal year ending in March 2018. Affected by Prime Minister Narendra Modi's backed by the decision to scrap the banknotes, the Indian economy suffered heavy losses. In view of the fact that the Indian economy is heavily dependent on cash, the decision to scrap banknotes prompted the International Monetary Economic Organization to lower its growth forecast for the Indian economy in the previous fiscal year to 6.6%.

    Regarding the current level of economic activity, the Bank of India is cautious. The central bank lowered India’s economic growth forecast for the fiscal year ending in March 2017 from 7.1% to 6.9%. However, the Central Bank of India is confident of a rebound in economic growth.

    In the statement, the Bank of India pointed out that “economic growth is expected to pick up quickly.” The central bank added that activities in sectors that rely heavily on cash transactions, such as retail, transportation and hotels, will “recover quickly”.

    At the February policy meeting, the Bank of India maintained its current interest rate level unchanged. This has changed the perception of people in the market: the Central Bank of India will cut interest rates. Part of the reason is that the Indian government's prohibition on the circulation of large banknotes has an adverse effect on India's economic growth.

    Goldman Sachs analysts said that at this policy meeting, the Bank of India’s relatively tough tone and its mid-term inflation target of 4% confirmed the correctness of our prediction: Within a certain range, the Bank of India did not cut interest rates. Possibility. The overall inflation rate remains within the target range of the Bank of India.

    In addition, following the ban on the circulation of large banknotes, the phenomenon of full currency liquidity, the reduction of loan interest rates, the short-term adverse economic impact of the ban on the circulation of large banknotes, the global inflationary environment, and the higher yields of U.S. Treasury bonds, all this Everything is possible to keep the central bank of India's interest rate level unchanged.

    Indian economist Shilan Shah pointed out that the inflation rate in India will rise in the future, although the current consumer price index remains at a "comfortable level" within the target area of the Central Bank of India. Syed said that whether the central bank of India ends its interest rate cut also depends on the upcoming monsoon season. The monsoon season tends to drive food price inflation. If India encounters a favorable monsoon season, food prices will decline, so I think the Bank of India is likely to cut interest rates in the second half of this year.