India may see foreign capital infusion with political stability and growth

Eswar Prasad, the Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University

Eswar Prasad, the Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University, exudes optimism that India could be “an alluring destination” for foreign capital after Prime Minster Narendra Modi’s return to power for a second term.

“Political stability, if accompanied by improvements in governance and continued strong growth performance, should make India an alluring destination for foreign capital,” Prasad told India Abroad in response to question if he sees infusion of venture capital from abroad which can help move stalled, infrastructure projects, in the wake of a stable governmentcoming to power in New Delhi

“An infusion of such capital, particularly if channeled through deeper fixed income markets, would provide a robust source of funding for major infrastructure projects and other projects that require substantial long-term financing,” Prasad, who is a senior fellow at the Brookings Institution, told this correspondent.

Foreign direct investment into India has risen from less than $25 billion in 2014 -— before Modi took power — to around $45 billion in 2018 fiscal year. Much of that growth was spurred by policies and also Modi's signature "Make in India" campaign to grow the country's manufacturing base.

Tolani described Modi’s election victory as a “resounding mandate” but added that certainly there is some combination of his being seen as strong on security issues and the nationalistic sentiments may have fed into it although in terms of economic performance,he has certainly delivered in the last few years.

Speaking on Bloomberg TV and also addressing a panel discussion on ‘Assessing India’s 2019 Election Results’at Brookings on May 24, he said there has been some skepticism about weather India’s GDP growth and employment numbers are as rosy as they look in official statistics. “But by setting all that aside, it has been a decent few years for India as there has been some reforms put into place, like goods and services tax, some aspects of banking reform and a few other things that have been done to get the economy going,” Prasad told Bloomberg TV.

Speaking at Brookings on May 24, Eswar said there has been questions whether the performance of the Modi government really matches the glorious picture that official statistics give, adding that some of those points of skepticism are well-warranted.

“But one cannot deny that it has been a pretty good run for India during Modi’s first term. Growth overall has been pretty good but at the same time there has been a lot that have not been done like employment growth, distributional consequences of growth and also on fiscal deficit,all of whichhave continued but what is remarkable is that the Indian economy continued to turn in very good growth performance despite all the chains still around its neck,” Prasad said in remarks during the hour-long discussion at Brookings.

Will there be significant changes coming in the next few years during Modi’s second term?

Prasad said what is important in the results is not just what message was being sent but what message is going to be read by Prime Minister Modi and his Bhartiya Janata Party. “The question is whether they see it as a mandate to push forward a nationalistic agenda, or a message to push forward an economic agenda and the answer as to what Modi is going to do depends only on how the mandate is interpreted,” Prasad said.

He noted that in any country, including in India, reforms have dislocating effects on some people,including those who are economically disadvantagedandfeel the initial impact of any dislocating reform.

“So, it is a question of political price and a political will. In the first term we did not see Modi putting that (issue) upfront. Will he do that in the second term? That is the open question,” Prasad said.

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