Many analysts are bracing for a new economic crisis, or at least a slowdown; other countries like India can come on top. For starters, every prediction of growth puts India on the World Champion spot from 2016 through 2018 with rates of around 7-7.9 per cent per annum. It doesn’t mean that India should discard reform programmes—it’s actually a wake-up call to intensify them. This crisis, a new kind of slowdown, one that affects more the financial economy than the real economy, can be India’s new golden opportunity.
The country needed to be prepared for this, and although it has come a long way in implementing deep economic and structural reforms, it still has a lot to do. Since Jim O’Neil coined the term BRIC, much water has flown under the bridge. Then, not many thought much of the economic potential of the BRIC group except China. Today India is not only the best-performing economy among them, but also in the world in terms of growth. Other giants like Brazil and Russia are not expected to go back into positive growth till 2019.
This new slowdown is not yet a full-fledged crisis, but it’s one that affects more intensively commodity-based economies, except China, an industrial power, and some banks. The commodity crash has been driven by weak oil prices, and some banks have been affected, among other reasons, for over-lending to oil giants and because some sovereign funds of oil-rich nations, which had heavily invested in banks, have had to sell their stake to help their ailing treasuries. It doesn’t really affect the real economy that is still doing quite well in other sectors.
India could benefit from this situation for many reasons. First, its energy bill has dramatically shrunk due to present oil prices. The savings go into tens of billions of dollars that are having a serious effect on the pockets of ordinary citizens.
India has to intensify its infrastructure programme, as it badly needs to gain competitiveness in being able to export goods at prices that are not burdened by transport costs and delays, also due to internal fiscal borders that should disappear with the adoption of GST. This infrastructure plan in itself (at $200 billion a year) is going to be a phenomenal growth motor, and India could overtake China as the world’s largest construction site. If it happens, India could become a serious export power—a major source of growth—something it has not yet achieved.
This conjuncture could push the much-needed reform agenda, and deepen the changes to make India even more attractive to foreign investment, as FDI looks for stable, safe, and business-friendly environments—some ripples as retroactive taxes have to be addressed. In a world of uncertainties and grave geopolitical instability, India is a safe haven for investment, which on top of that is going to have guaranteed returns—not only based on its gigantic internal market, but also its positive international and export perspectives.
India has a fantastic opportunity to take its place among geo-economic powers, and not only among demographic giants, military powers or the biggest geopolitical players, all of which it already is. The country has another essential wealth: tons and tons of ‘soft power’, the kind that has put India and its rich history at the centre of the planet’s respect and admiration. On the other hand, India is regarded as a highly responsible international actor, which adds to the world stability amid incendiary conflicts, terrorism, geopolitical instability, and what seems to be a time of profound geo-economic stress.
In some major economies, the political situation seems to be gloomy. These countries were traditional destinations of FDI that will surely shy away from these markets looking for more stable environments like India clearly has become.
It is becoming obvious that India is the place to be as scores of people are flocking to its cities, markets and cultural sites. It is of the essence that this intensive and renewed interest in the country does not distract the government, bureaucrats and business from the fundamental goal: the development of the nation in all its aspects, not only the economic one.
Aristegui is former Spanish ambassador to India