India’s economic success within Asia rides on whether the new government can implement a series of structural reforms, according to Standard Life Investments.
In the investment manager’s Global perspective report for 2015, Standard Life Investments emerging markets economist Alex Wolf said India has the opportunity to “overtake” China as the fastest growing large Asian economy.
Mr Wolf explained that in order for India to accomplish this, Prime Minister Narendra Modi needs to shift his focus towards changing the country’s growth model.
“India faces a once in a generation fork in the road. If a series of structural reforms are put into place, there is the prospect of the country taking advantage of its demographic dividend in the coming decade,” Mr Wolf said.
“Conversely, if internal opposition and intransigence at all levels of government cause the reform movement to slow and stall, then India will fail to meet its potential.
“[This will have] serious implications for social stability, the region, and also for global investors, who have started to buy into the growth story,” he said.
Mr Wolf pointed out the country had experienced a three-year period of “policy paralysis and sluggish economic growth” but India now appears to be at the start of a cyclical recovery.
He said the recovery was due to three “favourable factors”, including falling commodity prices, the start of an interest rate easing cycle and the government's prioritising economic reforms.
“The government’s reform drive is improving governance and lifting business sentiment. [Mr] Modi has centralised decision making and accelerated the process for government approvals,” Mr Wolf said.
“The government’s current incremental approach to reform will modestly boost potential growth, but a larger and more sustained improvement will require deeper reforms.”
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