Finance Minister Nirmala Sitharaman had a busy week along the Eastern Seaboard of the United States, traversing from Boston to the capital in Washington, DC before wrapping up her week with a cherry on top in the Big Apple.
Her visit followed closely on the heels of the inaugural in-person Quad summit in Washington, DC, where Prime Minister Narendra Modi and External Affairs Minister S Jaishankar spoke of shared diplomacy and increasingly integrated economic synergy in the Indo-Pacific region. It comes just ahead of a ‘2+2’ bilateral meeting of foreign and defence ministers, and a major Indo-Pacific Business Forum that will showcase India to thousands of business participants across the region.
Sitharaman’s visit can be understood in this larger context of India embracing shared responsibilities abroad while doubling down on investment, and economic growth at home. To this end, the minister delivered a consistent message to CEOs and investors in all three US cities: After 30 years of gradual liberalization, and seven years of bold economic reform, India's reality has surpassed its old, outdated reputation.
“India has come a long way and has made sweeping changes by way of reforms”, she said at a recent meeting while in the US.
This year marks the 30th anniversary of the famed 1991 reforms, when India eschewed its soviet-style planned economy, and opened up to the world in a gradual process of liberalisation, privatisation, and globalisation. Progress since then has been slow, and many critical economic reforms have languished for years, even decades. The changes are now beginning to fructify.
On October 21, India completed the herculean task of administering a billion COVID-19 vaccinations. Sitharaman touched on India's post-pandemic economic rebound, especially after the horrendous second wave of infections, and new incentive programmes in place to facilitate foreign investment.
For example, budget measures to boost the post-COVID-19 economic recovery have led to much-needed reforms in insurance, banking, and capital market regulation. Inefficient State-owned enterprises are finally being privatised, exemplified by the recent sale of Air India. Schemes such as Gati Shakti, along with the $1.5 trillion National Infrastructure Pipeline (NMP) trillion in green and brown field projects, aim to get India’s infrastructure up to speed, and reduce the investment gap with India's G20 peers.
In finance, the creation of an asset reconstruction company to resolve bad assets in the banking system will boost financial stability and credit growth, while measures to strengthen, and simplify, dispute resolution and secondary market regulation will help investors navigate an overly-complicated financial labyrinth.
Meanwhile, one notable silver lining in the dark clouds of the COVID-19 pandemic is the remarkable uptick in technology adoption in India, and thus the burgeoning growth of FinTech, and the robust startup scene. Tech-enabled systems helped people survive the worst of the pandemic by leveraging digital means to collect direct financial support, conduct government transactions, and receive critical market information.
While in the US, Sitharaman emphasised the impact of these various reforms at four multi-lateral roundtables to 105 US industry executives, and had 17 bilateral meetings with top global CEOs. The well-attended meetings epitomised a growing investor appetite for India, including (especially) for manufacturers seeking to diversify their global supply chains in the wake of pandemic-induced constraints in China.
Washington occupied the lion’s share of meetings, with the World Bank, the International Monetary Fund (IMF) as bilateral commitments saw a meeting with John Kerry, US Special Presidential Envoy for Climate, ahead of COP26.
Meeting between Sitharaman and US Treasury Secretary Janet Yellen for the Eighth US-India Economic and Financial Partnership saw key bilateral discussions ranging from strengthening the strong commercial partnership between Washington and New Delhi, and tackling pressing issues such as COVID-19 economic recovery and climate action as both India and the US pledged to mobilising $100 billion a year through public-private partnerships to tackle the pressing climate crisis.
Global industry leaders, however, cannot base their investment strategies on a government's political will alone; they need to see tangible progress in key areas of project execution as well. Despite the recent progress on reform investors in India remain cautious due to a lack of regulatory consistency, and transparency in the economy.
In private round table interactions with the finance minister, they have expressed concerns about the onerous data localisation mandates at the Centre and constricting labour and land laws in the states. While foreign investors welcome privatisation efforts in some sectors, they worry about consolidation of public sector entities in others, such as banking.
To attract the investment it seeks, the Government of India must redouble efforts to deepen local capital markets, reduce the cost of debt and equity financing in the country, and make it easier to hedge against currency risks. It could start by removing procedural barriers to investment, such as the high cost and lengthy time to register as a Qualified Foreign Institutional Investor (QFII) in India. Addressing these sorts of ‘next level’ challenges will be difficult, and time-consuming. But they are imperative.
As Sitharaman's successful visit to the US showed, there is a strong strategic partnership and close commercial ties between the US and India. It was a chance for leaders on both sides — US and Indian, public and private — to reaffirm their commitment to work together, build on the momentum of recent reforms, and boost investment, jobs, and growth in India.