The Modi reforms set to be 'transformational' for India
By Rob Brewis
Aubrey Capital Management fund manager Rob Brewis finds India's reform programme is the start of a virtuous cycle.
From Mumbai's slums to business boardrooms, Indians appear to be uniting behind Prime Minister Modi's drive to attack corruption, reduce red tape and streamline business applications, further reinforcing the improved growth prospects for the country.
Modi's own modest background no doubt fuels his vision to help the poor. Last November, his surprise decision to replace the nation's entire stock of 500 and 2,000 rupee notes caused significant disruption, especially for those in the countryside. But in Mumbai at least, most people have accepted it as one of many steps on the road to a wider and fairer tax net and a reduction in widespread corruption.
The next test of Modi's popularity is the Uttar Pradesh State elections which conclude in mid-March. Most consumer companies adjusted to the demonetisation with relative ease but we will find out soon if the wider audience still approves.
Perhaps a more significant step is the proposed introduction mid-year of a unified Goods & Services Tax, or GST, to replace the existing myriad of central and state taxes. The GST will create a common market of India, and further widen the tax net, bringing in many smaller firms for the first time.
Category-leading consumer companies like Godrej and Britannia are delighted at the prospect of a level playing field with the non-taxpaying players, as well as improved manufacturing and distribution efficiencies. The unbranded share of market is estimated to be over 80% in edible oils, over 70% in dairy products and over 30% in paints. Market share gains for companies like Marico's branded oils and Berger Paints seem inevitable.
Financial technology India's countryside is becoming more connected through Kendras (Hindi for ‘centre') where people can access communications and financial services. Although privately-run they play a part in the government's push for social inclusion.
At the Vakrangee Kendra in northern Mumbai, people were queuing to obtain biometric identification cards. Well over one billion have been issued so far and coverage is estimated at 92% of the State of Maharashtra and presumably higher in the city itself.
The effect will be transformational. The charity Reality Gives estimates that about 40% of Mumbai's 22 million people live in the city's slums. Many among the stream of new arrivals from the countryside or other parts of the country will join them. All realise the increasing value of the Aadhaar, which also allows for the opening of a bank account into which government benefits and subsidies can be paid.