Indian growth and development hold great promise. And policymakers look set to unlock that potential.

If Indian Finance minister Arun Jaitley’s February budget presentation is any indication of where India is headed, the country may well become the global leader in economic growth.

In a report presented to India’s parliament the day before the budget presentation, Jaitley said that India’s economy was expected to grow at a rate of more than 8% in the 2015-2016 fiscal year, while consumer inflation would drop to between 5.0% and 5.5%. The report on the state of the Indian economy also indicated that India could increase public investments and still hit its borrowing targets. The survey added, however, that the country needed to adhere to its medium-term fiscal deficit target of 3% of gross domestic product. Noting that India had hit an economic sweet spot, the report suggested that the country had room for big-bang reforms.

“We inherited a sentiment of doom and gloom. The investment community had almost written us off. We have come a long way since then,” said Jaitley.

Three days after Jaitley presented the Modi government’s budget, Reserve Bank of India governor Raghuram Rajan cut the repo rate by 25 basis points, to 7.5%, with immediate effect.

The Finance Ministry and the RBI are finally on the same page. “This makes explicit what was implicit before—that the government and the Reserve Bank have common objectives, and that fiscal and monetary policy will work in a complementary way,” Rajan explained.

The new budget calls for more than $11 billion in spending on infrastructure projects such as roads, railways, ports. And it calls for five “ultra mega” power projects to meet growing electricity demand and reduce the country’s reliance on energy imports.


Even more important, the report proposes a new set of domestic laws and measures designed to streamline economic management, steps that should make doing business in India easier and more attractive.

“The bold decisions are to bring in a much-required bankruptcy law and a higher devolution of revenues to the states, distributing 42% of revenues to states compared to 32% earlier,” says Hiren Ved, director and CIO of Alchemy Capital Management in Mumbai.

As a result, states will have larger funds at their disposal and freedom to decide on how to spend this money. Ved explains: “Hopefully, the better-run states would use these additional resources to spend on useful capex [capital expenditure], as there are limitations as to how much a top-down approach would work in a country like India, where the state governments may belong to a different political party than the one at the center.”

One important implication of this decision is that it should now be easier for the Finance minister to convince all the states to go ahead and implement the GST [goods and services tax] regime—a single tax regime across the country. “This [reform],” says Ved, “can potentially be a game changer for India over the next few years if implemented in the right manner, as optimal rates of taxes generate higher tax revenues for the government by bringing a large part of the economy into the tax net, benefiting the organized sector, lowering logistics costs, improving efficiency in manufacturing and overall ease of doing business in India.”


“If India is backing itself, foreign investors will take note,” wrote KKR principals Henry McVey and Sanjay Nayar in early March. Investors do perceive a changed environment, especially in the realm of technology and pharmaceuticals manufacturing. Cross-border technology investors, in search of large markets, have been buying stakes in Indian companies, hoping to replicate the successes of companies such as Uber, Alibaba and eBay.

The Times of India reported in February that Russian billionaire Yuri Milner’s investment fund DST Global was in talks to lead an investment of between $400 million and $500 million in Indian ridesharing app company Ola Cabs, a company in which DST invested $5 million last year. In 2014, DST also invested in a $700 million financing round in Flipkart, an online retailer. And in October, Japanese telecom and Internet giant SoftBank said it planned to invest nearly $10 billion in India over the next few years.

India’s pharmaceuticals sector has been receiving even greater attention—from private equity investors as well as multinationals. KKR, the private equity firm, announced it is planning to spend $200 million for a minority stake in Hyderabad-based Gland Pharma, a company which produces anticoagulants. Prior to KKR’s involvement with Gland, a number of large Indian generic drug companies had been acquired by global players. That list includes Daiichi Sankyo, Sanofi and Abbott Laboratories. In December 2013, Mylan, the US-based generic drugmaker, acquired Agila Specialties, a vaccine and injectables producer, for $1.6 billion.

The Modi government can certainly be credited with making the business environment more favorable for foreign investors, but the wave began well before Modi was voted into power. “The Indian economy has benefited more from global turmoil than from the new dynamic prime minister, Mr. Modi, who was elected only nine months ago,” says Karthik Balakrishnan of Globescape Capital, a Washington, DC, cross-border advisory firm.

The collapse of Russia’s economy, China’s sluggish economic growth and Brazil’s high inflation and slowing GDP growth have all played in India’s favor. “Having a floating currency, relatively transparent public markets and a democratically elected prime minister have sent India’s stock market soaring and [led to] record FDI inflows,” says Balakrishnan.

The Indian economy has benefited more from global turmoil than from the new dynamic prime minister, Mr. Modi, who was elected only nine months ago.

~ Karthik Balarkrishnan of Globescape Capital

Still, India has a long way to go. Long reputed to possess some of the world’s best technology talent, it hasn’t devoted the resources to tap it. Although venture capital invested in India in 2014 rose nearly four-fold to an estimated $4 billion, most of it went to mature businesses, little to start-ups—the drivers of innovation.

And like other developing markets, India has gone through its share of investor affection and disaffection. It still has to solve some of its lingering problems—rural poverty, growing inequality, pervasive corruption. And the low base of tax collection—only 3% of India’s population pay taxes—is an ongoing concern for corporate executives who worry that their firms will continue to have to bear the brunt of financing government spending. But offsetting that is the drop in oil prices: India’s energy bill is estimated to have lessened by $60 billion, giving the country more assets available for investing.

The Institute of International Finance, which tracks global capital flows, reports that in February, capital flows into emerging markets dropped to $12 billion from $23 billion. The money flowed out of troubled economies such as Ukraine, Brazil and Thailand. But Indonesia and India stayed intact. data Summary: India

Central Bank: Reserve Bank of India

International Reserves

$320.989 billion

Gross Domestic Product (GDP)

$2047.811 billlion*

Real GDP Growth




GDP Per Capita—Current Prices


GDP—Composition By Sector*








Public Debt (general government
gross debt as a % of GDP)




Government Bond Ratings
(foreign currency)

Standard & Poor’s


Moody’s Outlook

FDI Inflows

$36,190 million

$24,196 million

$28,199 million

* Estimates
Source: Country Economic Reports