Taking the Indian economy to a higher orbit

January 23, 2013

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Space research in India has come of age in the last five decades and the country is now in the elite club of countries capable of launching satellites for commercial purposes. What made this possible? An environment made conducive by government policy, objectives clearly spelled out, availability of funds, a homegrown talent pool and international tech support. Can a similar strategy work to take the Indian economy and the capital market to stratospheric levels?

The stability of a satellite (read: economy) would depend on how the rocket or carrier (read: enabler, the government) places it in a pre-determined orbit. This would depend on the thrust or the impulse generated by the multi-stage rocket system. The first stage requires more power to push the payload out of the atmosphere against gravity. Successive stages need less power but may need a different design, fuel and technology for delivery and long-term sustenance of the payload.

The Indian economy and the capital market got its initial thrust back in 1992 with the first set of economic reforms following decades of the Nehruvian socialist model. The government (the Congress for the most part) opened up several sectors of the economy for foreign investment — and thus India embraced globalisation.

This ensured capital formation at a higher pace, improved productivity and brought in competition among corporates. In 1994, the setting up of the National Stock Exchange made the capital market broad-based and also introduced the infrastructure and technology for transparent screen-based trading.

The last few years of the previous millennium saw Indian IT companies establishing themselves firmly in global trade. Successive coalition governments ushered in an era of public private partnership for sustainable development.

These impetuses enabled India to put itself on a stronger orbit within the diaspora. But for some time now, there have been calls for another round of economic reforms.

The Congress government has set the ball rolling. The further opening up of economy for foreign direct investment, raising fuel prices (LPG, diesel, petrol) to bring down subsidies and strengthen government finances, widening debt market investment limits to attract foreign capital — are all being touted as beginning another set of reforms. Amid skepticism, the equity market has cheered these moves and is nearing historic highs seen five years ago.

For now, enough steps have been taken to boost investor confidence. Steps like further rationalization of taxes, bringing in the goods & services tax, implementing the Direct Tax Code, targeted infrastructure spending, changes to archaic labour and land acquisition laws, could heighten business confidence. The Indian economy would then find itself in a self-sustaining energetic ecosystem that would enable it to scale greater heights in the coming decades. And the capital markets will follow suit.

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