India’s GDP topped $3.5 trillion in 2022, but bureaucracy… : Moody’s
India’s GDP topped $3.5 trillion in 2022 and will continue to be the fastest growing G20 economy for years to come, but reforms and policy hurdles could hamper investment, said said Moody’s today.
In a research report, the US-based rating agency said bureaucracy could slow down approval processes for obtaining licenses and setting up businesses, prolonging the gestation of the project.
“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.
He said a large young and educated workforce, the rise of 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 boost investment in renewable energy, he said.
“While demand in the manufacturing and infrastructure sectors will grow by 3-12% per year for the rest of the decade, India’s capacity will still rank well behind China’s by 2030,” Moody’s said.
Despite the high potential of the economy, there is a risk that the pace of investment in India’s manufacturing and infrastructure sectors may slow down due to limited economic liberalization or slower policy implementation.
“Lack of certainty about the time required for land acquisition approvals, regulatory clearances, obtaining licenses and setting up businesses can significantly prolong the gestation of the project. In addition, the limited multilateral liberalization of the India’s regional trade agreements will also weigh on foreign investment in the country,” he said.
The Indian government’s continued efforts to reduce corruption, formalize economic activity and strengthen tax collection and administration are encouraging, although the effectiveness of these efforts is increasingly under threat.
If implemented effectively, the measures taken in recent years – including those introduced during the pandemic to increase the flexibility of labor laws, increase the efficiency of the agricultural sector, increase investment in infrastructure, encourage investments in manufacturing and strengthening the financial sector – would lead to higher economic growth, according to Moody’s.
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