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Author: Eli Hamacher

Published in June 2018

Elected on a historic platform for reform, India’s Prime Minister Narendra Modi has been trying to improve Asia’s third largest economy by digitizing, modernizing, industrializing.

What has he achieved since taking office, what has he not? What has happened in terms of economic growth, the fight against corruption, the development of infrastructure and the creation of new jobs?

Answers were given by businessmen and experts on the 9th India Day Event on June 6, 2018, in Köln. The day witnessed thoughtful discussions of what is working and how businesses can grasp the opportunities India presents – and there were some clear warnings along the way.

Around 150 guests from various industries and science came to Köln’s Rhein Energy Stadium (home of Köln FC) for the 9th India Day to discuss India’s future and the potential for investment: What changes has business-friendly Indian Prime Minister Narendra Modi brought about in four years after taking office? What awaits new foreign companies who want to invest in the subcontinent?

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Modi and reform: what’s the real picture for foreign businesses in India?

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Strong nerves and empathy are required if you want to do business successfully in India. Since taking office in 2014, 67-year-old Prime Minister Modi has been pushing reform with unprecedented reform zeal. The Hindu nationalist politician is pushing 87 major reforms, including Make in India, Skill India and Clean India to name a few. At the end of 2016 he implemented a cash reform, which canceled out all large denomination banknotes overnight, and 6 months later the government introduced a Common Consumption Tax (GST) to avoid complicated tax variations between Indian states. These reforms in particular have temporarily shaken Asia’s third largest economy, slowing the 2017 growth rate to below the predicted seven percent.

But at the beginning of November 2017, the government again had the upper hand when the World Bank’s Ease of Doing Business Index reported that India had leapt 30 places within a year, holding the 100th place out of 189 countries. With the new tax reform (GST) it is expected that the country’s ranking will further improve in November 2018.

With the largest tax reform since independence in 1947, India introduced a universal system of indirect taxation in July 2017, and therefore finally provides a common market for the free movement of goods and services. GST replaces a large number of different and partly cumulative taxes. Many people think that the long term impact of GST will be very positive, but the implementation has been complicated and has slowed the economy.

As GST is settling down, the government is driving digitization to make money flow transparent, thereby raising the tax base and reducing corruption. India also improved significantly in the Global Competitive Index of the World Economic Forum, finishing in 40th place (out of 137 states). Three years earlier, the country was in the 71st position.

However, Indian experts highlight that the critical factors that had long burdened India’s growth continue to be issues: corruption, high tax burden, inadequate infrastructure and bureaucracy. Rising import duties add a new threat to Indian-European trade. Even with all these issues the latest survey by the Indo German Chamber of Commerce (IGCC) showed that 77 percent of the German members of the chamber would rate their Indian business positively for the next five years.

Somewhat more skeptical than many members of IGCC, Murali Nair of the Bertelsmann Foundation was less positive about his home country. If only 44 percent of Indian survey respondents reported that Modi is doing a good job in 2017, it will be only 34 percent in 2018, he reports. Especially farmers and the poorer and older people are expressing skepticism about the reforms.

There will be three important regional elections until the next parliamentary elections in mid-2019. “If Modi loses there, it could be that he comes with surprising reforms to win over certain voters layers.” Even the European entrepreneurs already doing business in India may need stronger nerves in this scenario.

Eli Hamacher works as a freelance business journalist. One of her main topics is India.


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