India Needs ‘Hard Reforms’ to Reach 7.5% Growth, HSBC Says

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India will need to carry out difficult reforms such as overhauling land and labor laws in order to grow the economy more than 7.5% over the next decade, according to HSBC Holdings Plc.

Even with easy to moderate reforms, growth can come in at 6.5% over the medium term, Pranjul Bhandari, HSBC’s chief India economy, wrote in a report on India’s elections Monday. “For 7.5%+ growth, moderate to hard reforms will be necessary,” she said.

Prime Minister Narendra Modi — who is seeking a third term in elections that run until June 1 — has been campaigning on making India a developed nation by 2047. While he hasn’t defined what that goal means, economists say to become a high-income country as defined by the World Bank, India’s economy would need to expand more than 8% annually for the next quarter century to achieve that target.

Bhandari differentiated India’s reforms based on the ease of implementation:

“The hard bucket comprises the most controversial reforms, requiring a lot more political capital in order to get them done,” the HSBC economist said. “These reforms may also be the most growth accretive over the medium term, as they address bottlenecks which large parts of the economy face.”

If the government sticks with the easy reforms of infrastructure investment, curbing the fiscal deficit to 4.5% by 2025-26, and supporting investments in futuristic sectors such as semiconductors, growth would reach 6.5% over the next 10 years, HSBC said.

“We believe it will be clear in the first year of the new government which reform bucket it is most likely to focus on,” Bhandari said.

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