Indian economy plagued at home

A weak rupee and dipping stock market can’t outweigh political speed bumps that remain

India needs to raise its GDP by removing political deadlocks that cloud investor confidence. Rupak De Chowdhuri / Reuters
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Emerging market economies around the world have had a rough summer. Plagued by depreciating currency and correcting stock markets after China decided to relax its valuation to the US dollar, markets from Turkey to South Africa have been particularly volatile. While weaker currency has many downsides, especially for the buying power of locals, it can also spur investment and exports.

In India, the rupee is weak and investment seems ripe except for the hamstrung political environment that continues to give the country an uncertain long-term economic complexion. To make matters worse for local and foreign investors, the country suffers from archaic labour laws and corruption in almost all sectors of society. Concrete moves to change this image have been slow to materialise, despite much rhetoric to the contrary, as one recent piece of legislation succinctly demonstrates.

A long overdue goods and service tax, which would replace a convoluted system of varying taxes and fees across India's 29 states, has been delayed by political discord between prime minister Narendra Modi's Bharatiya Janata Party and opposition Congress party. As The National reports today, foreign and local investors have warmly welcomed the tax as it is estimated to boost India's economy by up to 2 per cent. Given the country's slowing GDP growth, which came in below expectations at 7 per cent in the quarter between April and June, 2 per cent economic growth would be vital for the country. This legislation, along with land acquisition reforms and an electricity amendment bill, is bogged down in parliament.

The implementation of the new tax would be evidence that India is changing its culture of political deadlock. After all, Mr Modi came to power with promises to clean up corruption and remove exactly this type of political deadlock. Since his landslide victory last May, however, his government hasn’t implemented any significant policy to boost investor confidence.

Indeed, investors are eager to take advantage of the stock market correction and weak rupee but they remain cautious. Mr Modi knows what steps to take to shed India’s image of uncertainty. If the goods and services tax is passed, which doesn’t look likely in the short term, it would be the start of a new chapter in the economy. After 15 months in office, time is of the essence for Mr Modi.