The latest activity data for India have been disappointing but, despite the economy’s recent soft patch, developments over the past month should boost optimism over long-run prospects. In late August, the government announced that it was easing restrictions on foreign direct investment in various sectors such as coal mining, contract manufacturing and digital media. It also paved the way for foreign single-brand retail firms to open online stores. Since then, it has ramped up reforms in the banking sector. Most notably, the recapitalisation package has been bolstered by an extra US$10bn, and plans are afoot to merge 10 state-owned banks into just four. Taken together, these moves should help to mend balance sheets. Looking ahead, a strong electoral mandate and a relatively stable consensus over the importance of reform should ensure that the Modi government continues to gradually implement growth-enhancing measures over the course of its second term. This should ensure that India remains one of the world’s fastest-growing economies over the coming years.
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