China invests in India’s infrastructure

Narendra Modi’s term as India’s Prime Minister is in full swing, with a ‘Modi bounce’ seen in recent figures for FDI and an upturn in the rate of economic growth. Optimism is high that change for the better is underway in developing an infrastructure that can support India's 1.2 billion people.

Inward investment has begun to rise with optimism over much needed legal and tax reforms that make it easier for foreign companies to do business, though the entry of UK companies remains sluggish.

This week sees China’s President Xi Jinping meet Modi in India for the first time and Thursday’s announcement that China will pump $20bn into India’s infrastructure improvement. Where China can help is in the expertise required to mount the large scale projects that Modi knows are essential to keep India’s population mobile and the labour market more flexible. It will also create jobs. India’s parliament recently approved legislation that means railway investment can be 100% foreign owned and funded. Indian Railways simply hasn’t the funds to rebuild at the scale required. In Mumbai, occasional escalators on Western Railway stations are about the level of progress seen in recent years.

It is fairly true to say Modi plans to model India’s economic development on that of China and Singapore, not the UK and US, describing Gujarat, where he made his name as a politician and economic reformer as “India’s Guandong”. A case in point is the government’s recent decision not to support the loss making factory that produced the Ambassador motor car. Public Private Partnerships are the future, not nationalisation.

There’s a good Datablog in The Guardian that compares the world’s two most populous countries, with India well behind in female participation, adult literacy and in healthcare, though ahead on press freedom [just] and a lower rate of unemployment.

Modi wants every Indian to have access to a bank account, helping to support the poor in their applications for financial services and reducing inequality. This is also a way to avoid making government payments through corrupt officials. He wants India to replace its ‘red tape culture’ with a ‘red carpet mindset’ and has told all government offices to clear corridors of the excess filing cabinets, random furniture and bric a brac that have come to characterise them.

The Rupee has risen slightly against the US Dollar and the Reserve Bank of India has raised its Dollar purchases, ready to intervene in case of the expected impact of the end of QE by the Federal Reserve.

No wonder that the OECD now sees India as one of the fastest growing world economies going forward.