India’s GDP has crossed $3.5 trillion in 2022 and will be the fastest-growing G20 economy over the next few years, but reform and policy barriers could hamper investment, Moody’s said on Tuesday.
In a research report, the US-based rating agency said bureaucracy could slow down 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 largely young and educated workforce, increasing nuclear families and urbanisation 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 down because of limited economic liberalisation or slower policy implementation.
“Lack of certainty around the amount of time needed for land acquisition approvals, regulatory clearances, obtaining licences and setting up businesses can materially prolong project gestation. Furthermore, India’s limited multilateral liberalisation concerning regional trade agreements will also weigh on foreign investments in the country,” it said.