The other day, I read an article on the American humour and satire website The Onion, whose headline was 'Responsible Man Sets Aside Small Portion Of Every Paycheck For Bank To Gamble With'. Since banks don't really gamble in India, perhaps the Indian equivalent would be 'Responsible family regularly sets aside money for government to waste'.
But jokes aside, ever since May 26th, when Narendra Modi took over in Delhi, it's becoming increasingly unjustifiable to make fun of the government. With every week that passes, it becomes increasingly clear that not only do we have a new government and a new Prime Minister, we have a new kind of government. In just the last three days there has been a spate of news which relate directly to economic reforms, culminating in the big bang of diesel price deregulation.
On the 16th of October, first, PM Modi and Union Labour Minister Narendra Singh Tomar inaugurated the Shramev Jayate program. These are the beginning of the long-awaited labour reforms in India. And I really do mean long-awaited. Even as long ago as 1985, when Rajiv Gandhi launched his short-lived mini-liberalisation, it was clear that labour reforms would be key to whether India can compete. It's a tragedy that we had to wait for 30 years after that-the full working life of someone who could have benefitted! But anyhow, it's better to look ahead than look backward.
Later in the day, the government replaced the Finance Secretary (a Chidambaram retainer) and replaced with him Rajasthan's reform-minded Chief Secretary. It also filled in the post of the Chief Economic Advisor with Arvind Subramanian, an economist with a known growth-above-all point of view and someone who has worked closely with Raghuram Rajan. These are crucial changes made just days before the process for Budget 2015 begins. Most heartening is the fact that unlike the past regime, there is no urge to hire sycophants alone. Subramanian has publicly criticised the Modi government a couple of times, but the criticism has made sense and the willingness to appoint someone who can speak his mind is something that will prove important in carrying the reforms process forward. Then, on the 18th, came the deregulation of diesel which frees up the government's fiscal burden from being tied up to global fuel prices.
With these steps, we have a complete picture of Modi's vision for what needs to be fixed in the economy and how. Actually, 'fixed' is not the right word-Modi's vision is not negative in the sense of what is to be repaired, but positive what the new Indian economy should look like. The heart of this vision is that we must transition to an economy which does large-scale manufacturing. Despite the fact that we are a few decades late to the manufacturing party, Modi seems clear that there is no other way that a country of 120 crore people-60 crore of them under 25 years old-can find gainful employment and some measure of prosperity. Agriculture needs a far smaller workforce, and the world certainly doesn't need some 30 or 40 crore call centre agents. We need to make things, make a lot of them, and make them in India.
From fiscal management to smart cities to sanitation to 'Make in India', it's clear where we need to go. And to start on our journey, this government is systematically started putting the enablers in place, be it GST, or labour reforms, or infrastructure initiatives, or just letting Raghuram Rajan do his job on inflation. However, the most important thing that has happened is the rekindling of hope.
For equity investors, these are exciting times, simply because it's a phase when growth is clearly on its way, and the long term is more predictable than the short-term, and good times are on their way.
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