A street vendor wait to sell bags outside a railway station in Mumbai, India . Indian Prime Minister Narendra Modi's government has proposed to invest heavily in infrastructure, digital economy and job creation to lift a slugging economy that's burdened with a 45-year-high unemployment rate of 6.1 percentEconomy, Mumbai, India - 05 Jul 2019

NEW DELHI, India As India’s new budget sets the ambitious goal of almost doubling the economy’s size over the next five years, to $5 trillion, retailers cheered a more modest proposal: an easing in the requirements for single-brand retailers to source a large percentage of their merchandise from local manufacturers.

There are few specifics at this stage in the new budget presented Friday by Indian finance minister Nirmala Sitharaman, who simply said that “local sourcing norms will be eased for foreign direct investment (FDI) in the single-brand retail sector.” The rules were a major barrier to entry into India’s fast-growing, $700 billion retail market. They had required brands to source at least 30 percent of their merchandise from within India, and had taken effect when 100 percent FDI in single-brand retail was allowed in September 2012. Last year the government increased the window for such sourcing, stating that a foreign retailer would be able to get credit from any incremental increase in sourcing beyond the 30 percent. Global retailers had been fighting that clause.

Analysts said it remains unclear whether this clause would be removed completely — as many retailers are hoping — or brought down to a smaller amount. The FDI in multibrand retail, which was set at 51 percent in December 2012, has not seen any change despite intense campaigning by global retailers.

Kumar Rajagopalan, chief executive officer of the Retailers Association of India, was optimistic about the outlook for the nation’s economy within the new budget. “Consumption in India is bound to be given a boost through various measures that the government is contemplating. The great news also is that India now has a central ministry as DPIIT [Department for Promotion of Industry and Internal Trade] that is meant to help internal trade. A central policy for retail and internal trade is on the anvil. The digital economy is also being given support. All this, coupled with India’s large consumption base, can make India a great retail market to be in,” he said, adding that the majority won by the government led by Prime Minister Narendra Modi in the recent general elections would mean “stability and a possibility for the government to take unhindered steps towards economic development.”

But the budget wasn’t all good news for the retail and fashion sectors. Taxes were boosted for the very rich — which will also affect global company representatives in India — and there was an increase in duty on gold and jewelry. The tax rates for those earning from 20 million to 50 million rupees, or about $300,000 to $730,000, a year have been set at 39 percent, and for those earning 50 million to 100 million rupees a year at 42.74 percent.

The duty on precious metals, meanwhile, was raised from 10 percent to 12.5 percent, a boost that is expected to impact exports of gems and jewelry.

Watched carefully — for many reasons — the latest budget came midyear, after Modi and his Bharatiya Janata Party were reelected for a second term in May. His landslide victory was unexpected by most quarters, but over the past few weeks, two things have been clearer: The second term can be expected to ensure a continuity in policies and promises that have been made over the last five years, and there will be a continued focus on making India more attractive to global business.

The budget also stirred interest to see how Modi would reverse declining consumer confidence, and the economic impact of his return to power. It was also being watched keenly as finance minister Sitharaman — the second woman to hold the portfolio in independent India’s history — pointed out on Friday that the budget had been put together with a 10-year view in mind, and the goal of lowering the fiscal deficit to 3.3 percent of gross domestic product.

While the economy has continued to grow by about 7 percent annually over the last five years, making India one of the fastest-growing economies in the world, the question of whether Modi’s forceful, personality-driven approach will be proactive enough to help expedite and improve business remains unclear. Ajit Ranade, chief economist at the Aditya Birla Group, explained that one of the key issues is going to be fixing declining consumer sentiment, and the slowdown in growth in 2018-19. In the fourth quarter of last year, growth fell to 6.6 percent, the slowest it has been in recent years.

Devangshu Dutta, ceo and founder of Third Insight, a consulting firm focused on retail and consumer products, has similar reservations. “The biggest concern for the retail sector is consumer confidence, which may be weakened further if rural incomes are hit by a weak monsoon. While the government led by Prime Minister Modi has received an extremely strong electoral mandate for a follow-on term, I don’t think the consumer sector will show the same exuberance, at least for the next couple of quarters — in fact there may even be some short-term pain,” he said. “On the other hand, many ministers continue to hold their previous portfolios, which is an indicator of continuity of initiatives, or even a renewed push by the government to strengthen many of the key areas of economic performance and governance, which would help,” he pointed out.

Part of the pain that retailers are still recovering from is the demonetization program in 2016, when more than 80 percent of the cash from the economy was withdrawn. It was followed soon after in July 2017 with the announcement of a more centralized goods and service tax, which brought into effect an array of paperwork and complex issues that defied easy comprehension by smaller players.

However, global retailers and big businesses were pleased with the fact that some processes have been simplified.

“While much attention has been given to the controversial demonetization program and troubled rollout of the unified goods and services tax during Modi’s first term, other important reforms were made that went under the radar, such as refinement of antitrust laws and allowing of cross-border mergers. These types of changes sent positive signals for foreign companies contemplating breaking into the Indian market,” said Troy Keller, an attorney at the international law firm Dorsey & Whitney with experience in M&A, corporate governance and international business.

Like other analysts, he noted that the freedom to implement the government’s program would be stronger in coming months. “The BJP party’s strong showing would seem to free Modi’s administration to refocus on business reforms. There was a sense over the last 18 months that some of these initiatives were on pause leading up to the elections. Before that period, India was active in pursuing changes intended to promote business and jobs–albeit with mixed success,” he said.

Other analysts expect tougher reforms in the coming years. Analysts at consulting firm Crisil said their base forecast sees GDP growth rising from 7 percent in fiscal 2019 to 7.3 percent in the financial year ending March 31, 2020.

Dutta of Third Insight warned that the slowdown should not be taken lightly. “Macroeconomic conditions around the world are worrying, which can infect India regardless of the Indian government’s intent. Within India, the banking and financial sector is suffering from an overhang of weak loans from the past, which also infects the rest of the economy,” he observed.