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Modi government slow on reforms, says US report

07 July, 2016

The US, it seems, is not very impressed with the Narendra Modi government’s performance on economic issues.

The latest Investment Climate Statements 2016 report, prepared annually by US embassies all over the world, has come down hard on the Modi government’s tardy performance on economic reforms. 

The report said that not only has the Indian government been “slow to propose” economic reforms but it has also “struggled to pass through Parliament” many measures such as the Goods and Services Tax bill. “Investors have begun to wonder about the government’s strategy,” it said.

India and the US trade more than $100 billion worth of goods and services with each other, and have pegged the future potential at five times that figure. The US is India’s second-largest trading partner, after China. 

This report comes even as the two countries have been trying to further boost economic ties and explore new areas of doing business. Despite the oft cited bonhomie between Prime Minister Modi and US President Barack Obama, the two countries have been at loggerheads on various trade issues, including most recently on the question of minimum domestic requirements under India’s national solar programme. 

The US government’s report blamed “the decentralised nature of India’s (federal) political system” for this slow progress and asked investors to be prepared to face varied political and economic conditions across India’s 29 states and seven union territories.

“There are differences at the state level in the quality of governance, regulation, taxation, labor relations, and education levels. Although India prides itself on its rule of law, the country ranks 186 out of 189 in the World Bank’s Ease of Doing Business Report in the category of Enforcing Contracts. Its courts have cases backlogged for years, and by some accounts more than 30 million cases could be pending at various levels of the judiciary,” it noted. 

The report listed several “market challenges” which, it said, are “barriers to market entry” for US companies. These include problems with infrastructure, high tariffs and “protectionist” policies, stipulations on local content requirements, requirement of approvals for imported food items and a weakening of the patent regime in the pharmaceutical industry.

The report cast doubts on India’s growth rate, saying the figures could be “overstated”. “Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated,” it said.

Interestingly, the report praised outgoing Reserve Bank of India governor Raghuram Rajan and said his monetary stewardship “boosted investor sentiment”. Rajan said last month that he would not seek a second term at the central bank, following several allegations levelled against him by Bharatiya Janata Party leader Subramanian Swamy.

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Modi government slow on reforms, says US report

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