NEW DELHI: India’s GDP has surpassed US$3.5 trillion in 2022 and will do so fastest growing G-20 economy in the next few years, but reforms and political obstacles could hamper investment, Moody’s said Tuesday.
In a research report, the US-based rating agency said bureaucracy could slow approval processes for obtaining licenses and setting up companies, thereby prolonging the development of projects.
“India’s higher bureaucracy in decision-making will reduce its attractiveness as a destination for foreign direct investment (FDI), especially when competing with other developing countries in the region such as Indonesia and Vietnam.” Moody’s Investors Service called.
It is said that a large young and well-educated workforce, increasing numbers of small families and urbanization will boost demand for housing, cement and new cars.
Government infrastructure spending will bolster steel and cement, while India’s net-zero target will spur investment in renewable energy, it said.
“While manufacturing and infrastructure demand is set to grow at 3-12 percent annually for the rest of the decade, India’s capacity will still lag well behind China’s through 2030,” Moody’s said.
Despite the economy’s strong potential, there is a risk that the pace of investment in India’s manufacturing and infrastructure sectors could slow due to limited economic liberalization or slower policy implementation.
“Not knowing how much time it will take for land acquisition permits, regulatory approvals, obtaining licenses and establishing businesses can significantly increase project maturity. In addition, India’s limited multilateral liberalization in terms of regional trade deals will also weigh on foreign investment in the country,” it said.
The Indian government’s ongoing efforts to reduce corruption, formalize economic activity and strengthen tax collection and administration are encouraging, although the effectiveness of these efforts is increasingly at risk.
If implemented effectively, the measures taken in recent years – including those introduced during the pandemic to increase flexibility in labor law, increase the efficiency of the agricultural sector, expand investment in infrastructure, encourage investment in manufacturing and Strengthening of the financial sector – leading to: higher economic growth, said Moody’s.
In a research report, the US-based rating agency said bureaucracy could slow approval processes for obtaining licenses and setting up companies, thereby prolonging the development of projects.
“India’s higher bureaucracy in decision-making will reduce its attractiveness as a destination for foreign direct investment (FDI), especially when competing with other developing countries in the region such as Indonesia and Vietnam.” Moody’s Investors Service called.
It is said that a large young and well-educated workforce, increasing numbers of small families and urbanization will boost demand for housing, cement and new cars.
Government infrastructure spending will bolster steel and cement, while India’s net-zero target will spur investment in renewable energy, it said.
“While manufacturing and infrastructure demand is set to grow at 3-12 percent annually for the rest of the decade, India’s capacity will still lag well behind China’s through 2030,” Moody’s said.
Despite the economy’s strong potential, there is a risk that the pace of investment in India’s manufacturing and infrastructure sectors could slow due to limited economic liberalization or slower policy implementation.
“Not knowing how much time it will take for land acquisition permits, regulatory approvals, obtaining licenses and establishing businesses can significantly increase project maturity. In addition, India’s limited multilateral liberalization in terms of regional trade deals will also weigh on foreign investment in the country,” it said.
The Indian government’s ongoing efforts to reduce corruption, formalize economic activity and strengthen tax collection and administration are encouraging, although the effectiveness of these efforts is increasingly at risk.
If implemented effectively, the measures taken in recent years – including those introduced during the pandemic to increase flexibility in labor law, increase the efficiency of the agricultural sector, expand investment in infrastructure, encourage investment in manufacturing and Strengthening of the financial sector – leading to: higher economic growth, said Moody’s.
