Mining News

Kick-starting India’s economy

Posted by Alana Wilson on 5/16/2014 2:45:26 PM

By Alana Wilson

With India’s five-week mammoth election now behind them, The Economist has some advice for India’s new government on how to kick-start their economy. The article notes that India’s new prime minister will face “a long to-do list that includes everything from getting along with Pakistan to dealing with iron-ore mafias”. India’s economy is noted to have fallen behind in recent years and on some measures has even fallen backwards:

A decade ago India’s economy was winning new-found respect as a riot of energy and enterprise, but its performance in recent years has been dismal. Now foreign bosses roll their eyes when you mention India, as they did in the 1980s. Growth has fallen to 5%, half the level at the peak of the 2004-08 boom. Inflation and public borrowing are too high. The rupee slumped in 2013. Private firms are fed up with red tape and graft and have cut investment from a peak of 17% of GDP to 9%.

The priority actions for the new government reviewed in the article are:

  • Tackling India’s banking system which is plagued by bad debts and where banks are forced to buy government bonds
  • Ending a cycle of stagflation where high public borrowing has led to 9% inflation while households are buying gold from abroad to protect their savings
  • Creating more decent jobs

Although India has competitive wages that should be attractive to foreign investment, such investment is being hampered by uncertainty:

For firms wanting to invest, access to the ingredients of production—energy, labour and land—is uncertain and expensive. The taxation of foreign companies is a lottery.

India’s mining sector could help provide jobs and contribute to economic growth. Recent results from the Survey of Mining Companies show that although India’s policy environment has become more attractive to mining investment, it could go much further. India has improved its score on the Policy Perception Index (PPI), which rates a jurisdiction on 15 policy factors such as regulatory uncertainty or taxation, for each of the last four years. This has moved India from one of the lowest ranked jurisdictions in the survey (ranked 74th of 79 global jurisdictions in 2010/2011) to ranking 63rd of 112 jurisdictions in 2013.

Between 2012/2013 and 2013, India’s PPI score nearly doubled from 21.1 to 40.0 as its ratings improved most for the availability of labour and skills, trade barriers, and regulatory duplication and inconsistency. Its lowest ratings in 2013 were for the legal system (i.e. legal processes that are fair, transparent, non-corrupt, timely, efficiently administered); the taxation regime (includes personal, corporate, payroll, capital, and other taxes, and complexity of tax compliance), and for uncertainty concerning disputed land claims. Of these, the legal system was most deterring to investment with 24% of survey respondents rating it a strong deterrent to investment, with an additional 5% indicating that they would not pursue investment as a result. The taxation regime followed with 19% of respondents strongly deterred, and 10% not pursuing investment as a result. By focussing on these areas, India’s new government can help encourage foreign investment in their mining sector and help kick-start their economy.

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