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All That’s Key To Long-Term Gains

India is likely to witness two big ‘reforms’ in the new year — the play-out of the demonetisation drive and the implementation of the Goods and Services Tax (GST) bill

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India is likely to witness two big ‘reforms’ in the new year — the play-out of the demonetisation drive and the implementation of the Goods and Services Tax (GST) bill. Hopefully, both will be followed up by necessary actions, critical to reaping long-term gains.

The upcoming Union Budget will now take centre stage as the country awaits guidance from the finance minister on the next wave of economic reform measures.

Economic Growth
The Budget needs to address ways and means to boost growth, more so in light of the deflationary impact created by demonetisation. In order to brighten investor sentiment in the economy, the government needs to introduce measures to drive activity amongst startups and use programmes such as Skill India, Make in India, Start-Up India and others to power sustainable economic growth. It also needs to work towards stimulating spending and increasing the overall velocity of money in the economy. This, however, will be a tight-rope walk for the government as its endeavours to strike a balance between considerations of fiscal consolidation and rejuvenating growth.

The government has been actively promoting a culture of cashless transactions in the economy and we expect the Budget to further encourage and incentivise cashless transactions.

Digital Transformation
The digital revolution has impacted every industry and, in fact, every aspect of our lives. The trend will only gain more momentum in future. The financial sector is taking a quantum leap through digital, and according to industry assessments, digital natives are going to form the majority of customers by 2020. The RBI has also encouraged the growth of fintech and introduced operating guidelines for payment banks and small finance banks, so new players can leverage technology for financial inclusion in a cost-effective manner.

Other big trend in digital will be the emergence of big data as well as the imminent launch of the India Digital Stack. The India Digital Stack will help drive innovation through mobile apps that will help create opportunities across sectors such as financial services, healthcare and education. These enabling solutions will further drive financial inclusion.

Judicial Reforms
India’s journey towards becoming an international commercial hub was previously hampered by a largely ineffective arbitration regime that was afflicted with various problems including those of high costs and delays. To correct this, the government passed an amendment to the existing provisions to make arbitration a preferred mode for settlement of commercial disputes by making it more user-friendly and cost effective. This would lead to an expeditious disposal of cases and in turn, facilitate increased ease of doing business in India. While this has helped in instilling confidence in investors who were previously wary of choosing India as a seat of arbitration, a lot more needs to be done to reform the legal system, especially the commercial dispute resolution mechanism, if we are to allay the anxieties of foreign investors with regards to dispute resolution in India.

The Road Ahead
2017 offers a lot to look forward to. I expect the government to make the business environment friendlier for investors by limiting regulatory uncertainty and streamlining both tax laws as well as the approval process for investment projects. This, I believe, will also play an important role in incentivising corporate investment.

Cross-border trade and corporate activity will continue to pick up as the country becomes more interconnected with the rest of the world.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Stuart P. Milne

The author is Group General Manager & CEO, HSBC India

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