I was recently interviewed by the Inner Circle newsletter of Bonner & Partners based in the United States.I am reproducing the complete interview here. These answers are generally themes that I write about and they will give you a good summary of my views on various issues that face Indian economy right now.
Inner Circle (IC): Investors expected big things from India’s new prime minister, Narendra Modi, who was sworn into office in May 2014. For a time, at least, those expectations were reflected in a rising Indian stock market. The MSCI India Index surged 24% in 2014. But the “Modi Bounce” peaked early last year. Since then, Indian stocks are down 17% [they have fallen further since the interview happened]. I know you’ve been skeptical of Modi’s ability to push through tough economic reforms. Is he going to prove you wrong in 2016?
When Modi came to power, there was this expectation that he would start what we in India call the “second generation” of economic reforms. first generation of reforms started in 1991 under prime minister P. V. Narasimha Rao. These were largely focused on opening up product markets – cars, mobile phones, etc. You couldn’t find many of these things in India in the early 1990s, when these reforms were underway. Human desire was limited to buying a Bajaj scooter…or, at best, an Ambassador car.
The other two big, important markets in India – land and labour – were left more or less untouched by this first wave of reforms. So, there was this expectation that Modi would tackle reforms in these two areas. Also, in the run-up to the election, Modi promised “maximum governance and minimum government.” The maximum governance part is debatable. But the minimum government part has yet to materialize.