The new Indian government has boosted confidence and provided and improved perception towards the country, lending it an ‘open-for-business’ image, according to a report by a leading Singapore banking group.
In its report 'India: Time to Deliver' released on Thursday by DBS Bank, however, has put in a note of caution, saying, "But sustaining that optimism will not be easy."
The gross domestic product growth should rise but not as quickly as many expect and or hope.
In fact, some of the reform measures, including subsidy rationalisation, smaller hikes in support prices and a clampdown on black money could crimp growth in the short-term, the report said.
Any return to 9-10 per cent (economic) growth is probably some years away.
Much groundwork for reform has been laid but the implementation still lies ahead, it said. DBS group, which also operates banks in India, rated it as one of the leading markets.
"Execution risks loom large but we are optimistic. Reform takes time, to be sure," it said. The economy is in better shape now than a year ago.
The government is facing growing pressure to deliver on growth and reform.
"Improvement in the perception towards India and renewed confidence are the most notable changes over the past 12 months,"
"From broad mistrust, markets have drawn confidence from the new administration", it said.
Prime Minister Modi's efforts to forge stronger ties with strategic global partners have also provided an ‘open-for-business’ image, noted DBS.
While policy makers get some of the credit, favourable externals -- low commodity prices and ample liquidity -- have also helped.
Domestic reforms have been broad-based and incremental. Crucial areas were identified, including urbanisation, financial inclusion (broader public access to banking facilities), infrastructure and a bigger role for manufacturing.
While things are headed in the right direction, a mismatch between initial expectation and outcome has led to disappointment, the DBS said.
The improvement in confidence brought $42 billion of foreign capital inflows into Indian asset markets in 2014.
Image: A labourer pushes a hand cart loaded with sacks of rice at a wholesale market in Kolkata. Photograph: Rupak De Chowdhuri/Reuters