India’s GDP has crossed USD 3.5 trillion in
2022 and will be the fastest-growing G-20 economy over the next few years, but
reform and policy barriers could hamper investment, Moody’s said on Tuesday 23
May.
In a research report, the US-based rating
agency said bureaucracy could slow approval processes in obtaining licences and
setting up businesses, prolonging 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,” Moody’s Investors Service said.
It said a large young and educated
workforce, increasing nuclear families and urbanization will fuel demand for
housing, cement and new cars.
Government infrastructure spending will
bolster steel and cement, while India’s net-zero commitment will drive
investment in renewable energy, it said.
“While demand across the manufacturing and
infrastructure sectors will grow 3-12 per cent annually for the rest of the
decade, India’s capacity will still rank
well behind China’s by 2030,” Moody’s said.
It 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 because of limited economic
liberalization or slower policy implementation.
“Lack of certainty around the amount
of time needed for land acquisition approvals, regulatory clearances, obtaining
licenses and setting up businesses can materially prolong project gestation.
Furthermore, India’s limited
multilateral liberalisation with respect to regional trade agreements will also
weigh on foreign investments in the country,” it said.
Ongoing efforts by India’s government to reduce corruption, formalize economic activity, and bolster tax collection and administration are encouraging, although there are increasing risks to the efficacy of these efforts.