India's GDP crossed $3.5 trillion in 2022; bureaucracy to impact FDI attraction: Moody's
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.
PremiumIndia's GDP had 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, according to rating agency Moody's Investors Service. In a research report, the US-based agency said that 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," said Moody's.
Also Read: India's domestic economy is its primary engine of growth: Moody's
Increasing nuclear families, a large educated workforce, and urbanization will fuel demand for housing, cement and new cars. The government infrastructure spending will bolster steel and cement, while India's net-zero commitment will drive investment in renewable energy.
"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 added that 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.
The 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. India's limited multilateral liberalisation with respect to regional trade agreements will also weigh on foreign investments in the country, as per Moody's.
The efforts by the 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,'' said the rating agency.
Also Read: India’s economy backed by domestic demand, but high cost of funds hinders investments: UN report
According to the latest World Economic Situation and Prospects report released by the United Nations, India's economy is projected to expand by 5.8 per cent in calendar year 2023, supported by resilient domestic demand. The report, however, also underscored the high cost of funds and weak external demand that will continue to pose challenges for investments and exports.
Moody's added that if the measures are implemented effectively– including those introduced during the pandemic to increase the flexibility of labour laws, raise agricultural sector efficiency, expand investment in infrastructure, incentivize manufacturing sector investment, and strengthen the financial sector – it would lead to higher economic growth.
With inputs from PTI
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