Prime Minister Narendra Modi could not have asked for a better boost to his Make in India campaign than this: ratings agency Standard & Poor’s (S&P) has revised the outlook on India to “Stable” from “Negative”, while keeping the “BBB–” rating unchanged. One of the significant reasons for the upward revision according to S&P was that “the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential. This is exactly what Mr. Modi appears eager to convey through his Make in India campaign, launched to a packed audience in New Delhi’s Vigyan Bhavan on Thursday. The fact that the top brass of Corporate India appeared to be in full attendance at the launch showed the seriousness with which the campaign has been received. Mr. Modi struck all the right notes, pointing out how Indian companies were forced to consider investing outside the country due to policy flip-flops and delays in clearances. In that sense, his FDI — First Develop India — was a signal to companies that his government would create an enabling environment for investment, which he expected they would reciprocate by committing their energies and investments to the country. It is also significant that he thought it fit to point out India’s low ranking as regards the ease of doing business, assuring investors thereby that he was sensitising the bureaucracy to get its act together on this critical point. The jury will be out on this issue, going by the experience of the collapse of similar efforts to untangle red tape.
It is interesting to note that the Prime Minister did not dangle incentives to attract investors, a practice that has been in vogue until now. His promise to create a ‘business-friendly’ environment is probably more appropriate in today’s context of fiscal prudence. Indeed, S&P has referred to the fiscal constraints in terms of the high subsidy burden on the government, observing that successive governments have been unable to either increase the revenue base or curb expenditure. The remarkable turnaround in the external finances of the country with the current account deficit at a low of 1.8 per cent has obviously been an important factor, along with political stability, for S&P’s outlook revision. That said, it would be wrong to be complacent on this issue and assume that the job has been done. If anything, with the growth impulse returning and the prospect of investments picking up, the current account deficit could widen in the months ahead. It is indeed imperative that the government’s actions should match its words. For now, certainly, there is fresh wind in Mr. Modi’s sails as he prepares to address the CEOs of top American multinationals in New York on Monday.