Narendra Modi’s Reforms: India at the Basis of a New Commodities Boom?
Prestigious Hong Kong-based HSBC Bank claims that a new commodity boom may appear if India will boost investments in infrastructure and housing. Chances of increased spending in India have grown considerably after reform-minded Narendra Modi posted a victory in the May 2014 election. Economists at the HSBC Bank say that this may give rise to a new prolonged commodities boom as had occurred in the 2000s which - to a large extent - was triggered by accelerated economic growth in emerging economies, particularly China.
With around 1.29 billion inhabitants, India contains a huge population. However, the process of urbanisation is slow, infrastructure is mostly lacking (evidenced by the weak state of the country’s road network) and access to electricity is not common throughout the vast country. This implies that there remains enormous room for growth and, provided that this growth potential can be tapped, the HSBC Bank expects a rapid increase of per capita commodities consumption in India will spur global demand. However, as a prerequisite, the Indian government will need to increase public investments sharply (as well as attracting private investment). Despite the size of investments needed, another stumbling block that can obstruct a new commodities boom is an economic downturn in China, triggering declining demand from the world’s second largest economy. According to a recent World Bank report, China’s economic growth is expected to slow to 7.6 percent (year-on-year/yoy) in 2014, and declining further to 7.5 percent (yoy) in 2015. Since 2010, when China recorded an impressive GDP growth rate of 10.4 percent (yoy), its economy has been slowing.
A few days ago, it was reported that the Narendra Modi-led government of India plans large-scale privatizations in 2015, seeking to raise about 700 billion rupees (almost USD $12 billion) through asset sales (primarily those state-owned companies that have already been partly sold). Proceeds from these sales will be used to finance Modi’s ambitious growth and jobs agenda.