Tags: India | Singh | rupee | reform

Indian Transformation: Real or Illusion?

By Ashish Advani   |   Wednesday, 10 Oct 2012 07:54 AM

I have been critical of India in recent times. India did not do itself any favors by dragging its feet though the various corruption scandals. It let the global opinions on the Indian economy and effectiveness slide.

The nadir was reached when Time magazine called Prime Minister Manmohan Singh the “underachiever” leader of India. Singh was the finance minister in the early 1990s when the reform era started, which re-established India as a global player. Dubbed as the father of economic reforms, he dismantled the socialist-era restrictions and brought India to the forefront.

When he became prime minister in 2004, the world had great expectations of him. Somehow he lost his way and turned from fearless crusader to indecisive and toothless leader. India soared until 2007 and then collapsed with the world in 2008 and 2009.

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One of the biggest criticisms against India has been its reluctance to open up its economy to global players and competition. While some sectors were partially open to foreign ownership, several key sectors remained closed to international players. Singh is a trained economist from Oxford and knows well that protectionism never succeeds in the long run. Yet, politics cuffed his hands and he played along with regional vested interests, pandering to their whims at the cost of tarnishing India’s reputation.

Back in 1991, he had liberalized the industries, inviting foreign capital and investors to take part in the Indian renaissance. His lack of pushing through reforms not only jeopardized the old changes, but also did not offer any progress.

As the global recovery has been tepid at best, India was set to surge again alongside China, but has stagnated since. This week, the International Monetary Fund downgraded Indian growth to about 5 percent, the lowest official estimate by far.

Back in August, fed up of the inaction and global criticism, Singh decided he’d had enough. He shuffled his core team and brought about what is now the beginning of a new dawn. Well, at least it seems so as of now.

He has thrown away backroom politics and decided to become the economic reformer that he was known for. He has forged ahead with reform in the retail sector (welcome Wal-Mart and Carrefour), airlines (not sure who he is welcoming here), as well as insurance sector. He has further reduced subsidies on oil and petrol, with a direct aim at reducing the fiscal deficits.

If these reforms stick, we will see a new awakening of India. Already the stock market has gained 9 percent since August. The Indian rupee, which was in freefall, has rallied 7 percent. While the damage was much steeper and much more confidence restoration needs to be done, I am seeing a new and bolder leader re-emerge and finally take charge.

If these new reforms are not reversed, we will continue to see significant gains in Indian stocks, industries and the Indian rupee.

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With elections over two years away, we might just see a real awakening yet.

I will be watching the progress as a hawk and will bring you the situation from my boots-on-the-ground sources as it unfolds. In the meanwhile, I would cautiously dip my ties back in and start with some safe and wieldy fixed-income investments that can yield about 8 percent.

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