The Bombay Sensex (
) continues to rise as some fundamentals of the Indian economy
start to improve.
[caption id="attachment_65841" align="alignright" width="300"
caption="As the Indian government becomes more business friendly,
the country's economic prospects look brighter."]
The Indian economy has underperformed emerging market rivals --
namely China (
) -- over the past few years in terms of growth as the result of
structural impediments that have prevented
from reaching its full potential. This resulted in sub-par growth
rates and sovereign debt downgrades from international ratings
Although the Indian economy is far from remedying all of its
myriad fundamental problems -- India's lack of domestic energy
resources will continue to pressure its trade balances going
forward -- India's stock market has performed admirably. The Bombay
Sensex is up more than 15% this year, while the Shanghai Composite
is down 14% over the same period.
The Indian government, which had up until recently embraced a
rather obstructionist stance towards, took another step in the
right direction. Earlier in the month, the government finally
allowed foreign companies like Etihad and Air Asia to invest in the
country's struggling airline sector; today, populist political
figure Mayawati of the Bahujan Samaj Party
consented to removing restrictions on allowing
foreign retailers moving into India
The Indian economy is hamstrung by the inability of retailers to
operate efficiently; while the entrance of multinational players
like Tesco, Carrefour, and Walmart (
) will not instantly remedy the many inefficiencies, but
it would be a start
. As well, it could represent a sea change in the way in which
India perceives foreign operators.
Furthermore, an increase in foreign direct investment would
positively affect the Indian economy's underwhelming trade
If the global economy returns to growth, America avoids going
over the fiscal cliff, and the Indian government continues to
embrace less obstructionist policies, the Indian economy may return
to the heady growth rates of years past.