[Mary T. Barra, the chief
executive of G.M., came to Pune in western India last September to oversee the
start of Chevrolet exports from there to Chile. She is also scouting for
opportunities to expand in India’s auto market, which the company predicts will
be one of the world’s three largest by 2020.]
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An industrial project under construction in Pune. Some
economists predict India's
growth could surpass China's next year. Credit Atul Loke for The New York Times
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SRIPERUMBUDUR, India — China’s economy is
slowing. Brazil is struggling as commodity prices plunge. Russia, facing
Western sanctions and weak oil revenue, is headed into a recession.
As other big developing
markets stumble, India is emerging as one of the few hopes for global growth.
The stock market and
rupee are surging. Multinational companies are looking to expand their Indian
operations or start new ones. The growth in India’s economy, long a laggard,
just matched China’s pace in recent months.
India is riding high on
the early success of Prime Minister Narendra Modi and a raft of new
business-friendly policies instituted in his first eight months.
Small factories no longer
need to shut down every year for government inspectors to spend a day checking
boilers. Foreign investment rules have been relaxed for insurers, military
contractors and real estate companies. A broad tax overhaul is underway.
Renewed optimism from
outside investors is spurring business expansion in cities around the country
like Tiruppur, a hub of India’s yarn and textile industry. “Most of the
factories in Tiruppur are doubling or tripling their capacity, and these are
huge factories,” said Pritam Sanghai, the director of Arjay Apparel Industries.
Whether India’s momentum
is short-lived or sustainable hinges on whether Mr. Modi can push through
deeper reforms, including addressing the persistent poverty and corruption that
plague the economy. Lacking the necessary political support to overhaul legislation
quickly, he has largely relied on temporary measures to make changes.
His party lost badly in recent local elections in
Delhi. The next test comes later this month. The government is set to present
its full-year budget to Parliament and lay out an agenda for taming chronic
deficits while increasing investment, bolstering manufacturing and building
modern highways and ports.
India, in part, is
benefiting from favorable economic winds, the same ones wreaking havoc in
Russia, Venezuela and elsewhere.
The country’s reliance on
imported oil, for example, has been its bane for decades. By last summer, oil
was a $100 billion drag on the economy, roughly 5 percent of the entire
country’s economic output.
With crude prices now
halved, fuel costs for trucks and cars have plunged, pulling down transport
expenses and inflation. The cost of government fuel subsidies has nose-dived,
helping curb the country’s chronic budget deficits.
“We’ve got essentially a
$50 billion gift for the economy,” said Raghuram G. Rajan, the governor of the
Reserve Bank of India.
India is also profiting
from the troubles of other emerging markets.
China’s investigations of
multinationals, persistent tensions with neighboring countries and surging
blue-collar wages have prompted many companies to start looking elsewhere for
large labor forces.
Big companies like
General Motors have recently moved their international or Asia headquarters
from Shanghai to Singapore as they expand further into India and its main rival
as an alternative to China, Indonesia.
Mary T. Barra, the chief
executive of G.M., came to Pune in western India last September to oversee the
start of Chevrolet exports from there to Chile. She is also scouting for
opportunities to expand in India’s auto market, which the company predicts will
be one of the world’s three largest by 2020.
“All the circumstances
have come together to make manufacturing and growth happen,” said Shailesh V.
Haribhakti, the chairman of MentorCap Management, a boutique investment bank in
Mumbai.
As India’s fortunes begin
to shift, Mr. Modi is trying to tackle thornier economic issues.
He wants to expand the
private sector’s role in coal mining, a government-dominated industry. He is
looking to accelerate the construction of roads and other infrastructure. On
the tax front, Mr. Modi hopes gradually to replace state taxes on goods that
cross state borders with a national tax.
In a January visit to New
Delhi, President Obama highlighted chronic regulatory obstacles in India.
“There are still too many barriers — hoops to jump through, bureaucratic
restrictions — that make it hard to start a business, or to export, to import,
to close a deal, deliver on a deal.” But Mr. Obama acknowledged the country’s
progress, saying, “Prime Minister Modi has initiated reforms that will help
overcome some of these barriers.”
The challenges are significant.
The World Bank recently ranked India
as the 142nd-hardest place to do business out of 189 countries.
Legal disputes, often
involving land, can bog down even the most sought-after projects. A Boeing
aircraft maintenance center is only now close to opening after a two-year delay
in construction of a crucial taxiway, caused by villagers who lay down in front
of bulldozers until the state government paid them more for a 200-yard strip of
land.
Nokia and Foxconn
Technology of Taiwan suspended production late last year at an eight-year-old
cellphone manufacturing complex here in southern India. Nokia is dealing with a
$365 million tax dispute that started under Mr. Modi’s predecessor, as well as
slowing demand for the older models of cellphones that the complex produced.
Foxconn faced hundreds of
young workers who held a one-day hunger strike on Jan. 27. The company offered
them 22 months’ severance. They wanted six years’ severance, and ended up settling
last Thursday for roughly three years.
Rohini, a 25-year-old
Foxconn worker who earned $220 a month at one of the factories in the complex,
said she had been saving money from the job to create a dowry that would make
her a better marriage prospect. So she was devastated when she heard from a
co-worker that they would lose their jobs.
“I felt both anger and
sadness. I cried a lot,” she said. “I know that according to the law, I must be
given employment until age 58,” she added.
Those labor law protections
are starting to erode. Many companies rely increasingly on contract workers,
whom they require to leave after a single year, circumventing the employment
guarantees.
For Mr. Modi, the most
immediate challenge is on the political front.
While his party dominates
the lower house of Parliament, the deeply divided upper house has delayed
action on bills for his longer-term reforms. So Mr. Modi has relied on
executive orders that automatically expire in late April. They can be renewed,
though not indefinitely.
Needing support from
minority parties in the upper house of Parliament, he sent Arun Jaitley, the
finance minister, to the home of Jayalalitha Jayaram, the longtime leader of an
influential regional party here in Tamil Nadu state, with flowers on Jan. 18.
The trip was controversial since Jayalalitha, who is known by her first name,
is out of prison on bail pending her appeal of a conviction last year in a
corruption case.
The government has also
been criticized for revising the way it calculates gross domestic product. The
move on Jan. 30 brought India into line with the practices of most developed
nations and produced a sharp increase in the country’s reported economic
growth. But critics viewed the timing as a political move intended to give Mr.
Modi more support.
Even some of Mr. Modi’s
supporters are cautious about what he has accomplished so far. “Lots of people
have been blindly jumping into India on euphoria and hype,” said Rajeev
Chandrasekhar, a wealthy financier and a member of the upper house of
Parliament who wants more extensive reforms when the prime minister sends the
new budget to Parliament on Feb. 28. “He hasn’t introduced any new ideas, and
that is what he needs to do in February.”
Mr. Modi’s senior advisers say that they have begun making significant changes and that critics are too impatient. “There are a lot of inherited, legacy issues we had to work through,” like budget deficits and persistent inflation, said Jayant Sinha, the minister of state for finance. “You have to give us a little bit of time for every business to feel the difference.”
Mr. Modi’s senior advisers say that they have begun making significant changes and that critics are too impatient. “There are a lot of inherited, legacy issues we had to work through,” like budget deficits and persistent inflation, said Jayant Sinha, the minister of state for finance. “You have to give us a little bit of time for every business to feel the difference.”
