La India avanza con reforms

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Josh Crabb, head of Asian equities, Old Mutual Global Investors

Some 10 months on from Prime Minister Narendra Modi’s landslide election victory, there are signs that his promises of far-reaching reforms are finally coming to fruition. Josh Crabb, head of Asian equities at Old Mutual Global Investors, looks at how recent changes to land legislation should do much to grease the wheels of infrastructure spending.

On the back of the most resounding Indian election win in the past 30 years, Narendra Modi entered office with a luxury few of his predecessors could enjoy – a clear remit. But having campaigned fiercely on reform promises, the first months of his premiership were dominated by battles with the many eccentricities of Indian law and culture. Land ownership rights have long dogged pro-business policy – infrastructure roll-out and farm consolidation trail many of the country’s regional peers – while stringent environmental laws and rampant corruption have made the playing field anything but level.

Indeed, the Indian agriculture sector bears the unenviable title of ‘the most backward in Asia’. Historically, what could have been mistaken for a series of cricket wickets has done little to instil belief in the commercial and productive potential of the sector! But this is one of many areas that stand to benefit from the Modi government’s recent Land Acquisition Act. The previous legislation that required at least 70% consent from affected landowners has been waived on acquisitions intended for defence, rural infrastructure, affordable housing, industrial corridors and infrastructure projects. Change is afoot.

While Modi has a dominant position in India’s lower house, he has control of just 18% of parliament’s upper house. This position is gradually improving as his party dominates state elections but in the meantime pushing through reform is far from straightforward. Indeed, it is no surprise that progress on the Delhi-Mumbai Industrial Corridor – at the centre of which is new rail and freight infrastructure – accelerated sharply following recent wins by Modi’s Bharatiya Janata Party in Haryana and Maharashtra, two of the featured regions. Lower logistical costs and increased domestic trade are the likely benefits for Western India, a region that already makes up around one-third of the country’s GDP.

Meetings with company management teams both invested in and based in India suggest agricultural consolidation is already in evidence. The ramifications of this consolidation could be significant. Through more progressive farming techniques – pesticide businesses are already reporting increased demand for industrial-scale products – greater efficiency and improved productivity these factors stand to have positive consequences for the wider economy. For example, endemic inflation should soften as higher crop yields and greater economies of scale feed through to food prices.

A country all too familiar with false dawns is right to be optimistic about its prospects under the leadership of Modi. It really could be ‘different this time’. Modi came to power having performed reform wonders in his home state of Gujarat and he leads the country at a time when the opposition has run out of steam. What’s more, the weak oil price has provided a sizeable tailwind behind the economy and in the eyes of much of the electorate, its timing is no coincidence – Modi is responsible. The weight of expectation resting on his shoulders is sizeable but he has the tools at his disposal to achieve everything his government has promised. Ultimately, only key man risk is an obvious chink in the Indian government’s impressive armour.



Josh Crabb se incorporó a Old Mutual Global Investors en octubre de 2014 como jefe de renta variable asiática.

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