MUMBAI -- Indian Prime Minister Narendra Modi's economic reforms, dubbed Modinomics, have brought in a flood of foreign investment and propelled stocks to an all-time high, but real growth remains elusive as domestic companies struggle to keep up with expectations.
Foreign direct investment jumped 24% on the year to $12.7 billion for the May-September period. This is in line with Modi's "Make in India" initiative. Since taking office six months ago, Modi has aggressively courted automakers and other manufacturers to set up production bases in India.
South Korean steel giant Posco announced in mid-November that it will invest $20 million to build a mill for automobile steel in Gujarat. The western state, where Modi served as chief minister for many years, has successfully attracted the auto industry and is seen as a symbol of India's drive for economic reform and industrialization.
With India also planning to ease restrictions on foreign capital in the real estate business, Japanese company Tama Home decided in September to enter the country.
Meanwhile, information technology companies around the world are keeping a close eye on the Digital India initiative -- a state-sponsored drive to enhance IT infrastructure throughout the country. U.S.-based Cisco Systems in November revealed a $1.7 billion annual investment plan for India. Japan's SoftBank also aims to pour 1 trillion yen ($8.42 billion) into the nation's Internet industry over the next decade.
The world's hopes for India are building up, Mitsui & Co. President Masami Iijima said at a Japan-India Business Cooperation Committee meeting on Nov. 17 in New Delhi. Iijima, who headed the Japanese delegation, said Japanese investment in the country could accelerate.
Stock prices are also soaring as investors bet on Modinomics. The benchmark Sensex index has risen more than 15% since late May and is now hovering around the highest levels on record.
But the businesses themselves are falling short of mounting expectations. The 30 major companies that constitute the index logged a combined 587.5 billion rupees ($9.46 billion) or so in net profits for the July-September quarter, gaining only 6% on the year. They enjoyed double-digit growth in April-June.
Some major players in consumer products, such as Hindustan Unilever and leading automaker Maruti Suzuki India, managed stronger year-on-year profit growth last quarter than in the April-June period. But profits declined at auto giants Mahindra & Mahindra and Tata Motors.
In the energy industry, which is expected to benefit from structural reforms, Tata Power booked a July-September net loss of 770 million rupees.
Market watchers say it will take time for companies to fully benefit from the government policies. More infrastructure projects are being approved, for example, but they will likely not start turning profits until next fiscal year at the earliest.
The Modi government will draft the fiscal 2015 budget in February and likely come up with extra reforms to boost growth. With expectations rising both at home and abroad, it will feel pressure for concrete results.