India's Nifty Fifty index of top stocks this week broke through the 9,000 level for the first time and the Sensex index broke the 30,000 barrier after the Reserve Bank of India following up the annual Budget announcement over the weekend with an unscheduled cut to interest rates.
Such records are more likely to be due to what is turning out to be a perfect storm of economic circumstances rather than government actions. That is the opinion of many commentators after Narendra Modi's government delivered its first full-year Budget since its election last May. Finance minister Arun Jaitley hailed India's "chance to fly", but many felt that the Budget failed to deliver the 'big bang' reforms that were hoped for when Mr Modi swept to power.
Among the reforms introduced, a unified nationwide general sales tax to replace a mixed bag of local taxes from next year was one of the most crucial. Furthermore, corporate taxation will be cut from 30 per cent to 25 per cent over the next four years, while the super rich saw an extra 2 per cent income tax surcharge placed on their earnings. Mr Jaitley also proposed a shifting of budget deficit targets back by a year, freeing up the government to spend heavily on infrastructure, with rail and road a priority.
But arguably more important for India's economy, and its stock markets, are the economic circumstances which have combined to provide a major boost to its economy. The slump in the oil price has taken the sting out of inflation and this allowed the Reserve Bank of India (RBI) to start easing interest rates with a symbolic 0.25 per cent reduction late last year followed by another 0.25 per cent cut this week, taking the interest rate to 7.5 per cent. Notably, the RBI has committed to a focus on inflation targeting in what is its most telling shift in economic policy in decades, aiming for inflation of 4 per cent, or within a 2 per cent band, either side, by March 2017. Such commitment to monetary and fiscal discipline is welcome and is likely to further encourage the inward flows of investment India has seen. And these trends can often become self-propelling, with India's GDP now expected to rise to 8.5 per cent this year, meaning that the country will usurp China as the most dynamic of the major developing economies.
It could just be that India does not need to produce 'big bang' reform, but simply needs to keep up the pace of what Mr Modi's chief economic adviser, Arvind Subramanian, has called "creative incrementalism" while enjoying the tailwinds provided by external economic factors.
