India’s GDP will surpass USD 3.5 trillion in 2022, making it the fastest-growing G-20 economy in the coming years, according to Moody’s, but reform and policy impediments might stymie investment.
The US-based rating agency stated in a study paper that bureaucracy could hinder approval processes for getting licences and establishing enterprises, extending project gestation.
“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 economies in the region, such as Indonesia and Vietnam,” according to Moody’s Investors Service.
According to the report, a mostly youthful and educated workforce, growing nuclear families and urbanisation will drive demand for homes, cement and new cars.
Government infrastructure spending will boost steel and cement production, while India’s net-zero promise will spur investment in renewable energy, according to the report.
“While demand in the manufacturing and infrastructure sectors will grow 3-12 per cent annually for the rest of the decade,” Moody’s predicted.
“India’s capacity will still rank well behind China’s by 2030.”
Despite the economy’s tremendous potential, the pace of investment in India’s industrial and infrastructure sectors could stall due to inadequate economic liberalisation or delayed policy execution, according to the report.
“A lack of certainty regarding the amount of time required for land acquisition approvals, regulatory clearances, obtaining licences and establishing businesses can materially extend project gestation. Furthermore, India’s limited multilateral liberalisation in terms of regional trade agreements will weigh on foreign investment in the nation,” the report added.
The Indian government’s ongoing attempts to eradicate corruption, formalise economic activity, and improve tax collection and administration are positive, but their efficacy is under threat.
Measures were taken in recent years, including those introduced during the pandemic, to increase labour law flexibility, increase agricultural sector efficiency, expand infrastructure investment, incentivise manufacturing sector investment and strengthen the financial sector, which would lead to higher economic growth, according to Moody’s.
