After almost two years of a near policy inertia, policy logjam has broken in India. The government of India announced several long awaited reforms like fuel price measures including diesel price hike, FDI in many sectors including retail, Divestments in four Public Sector Undertakings (PSUs). We think these reforms are now irreversible given the changed political scenario. All these measures are positive and bode well for the Indian Rupee, foreign inflows, markets and ratings (see charts below). We would like to highlights the macro implications of these reforms in this note.
We think the key factors triggering this sudden awakening are potential risk of sovereign rating downgrade, focus on growth which has fallen to a ten year low, need to attract capital flows to finance the Current Account Deficit (CAD), reviving positive sentiments in business community and focus on upcoming general elections.