One of the reasons for slower economic growth in India is weak investment demand. But as the World Bank’s new Global Economic Prospects report highlights, India is not an exception. Investments have slowed in general in emerging markets and developing countries in recent years. Slower investment growth will have a bearing on future potential as developing countries have vast investment needs.
A number of factors, such as deterioration in terms of trade for commodity-exporting countries, the slowdown in China, weak economic activity in advanced economies and subdued capital flows, have affected investment growth in recent years.
What is worrying is that investments in the developing world have slowed despite a rapid rise in credit growth. Benign global monetary conditions and credit availability are largely being used for consumption. As a result, it is possible economic activity will suffer a deeper shock as and when the credit boom unwinds and a debt overhang will make recovery far more difficult.