The rating firm Moody’s Investors Service states that although India’s GDP will be the fastest-growing G-20 economy over the next several years and would have surpassed USD 3.5 trillion in 2022, reform and regulatory hurdles may prevent investment. The US-based organization claimed in a research report that bureaucracy might hinder the approval procedures for getting licenses and establishing enterprises, extending 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,” stated Moody’s.
The need for homes, cement, and new cars will be fueled by rising nuclear families, a large educated workforce, and urbanization. Investment in renewable energy will increase as a result of government infrastructure spending and India’s aim to net-zero emissions. India’s capacity will still trail China’s by 2030, according to Moody’s, even if demand in the manufacturing and infrastructure sectors will increase by 3–12% yearly over the next ten years. In spite of the economy’s considerable potential, it continued, there is a chance that investment in India’s industrial and infrastructure sectors will slacken due to a lack of economic liberalization or a lag in the implementation of new policies.
Project gestation can be significantly prolonged by the uncertainty around the length of time required for land acquisition permits, regulatory clearances, obtaining licenses, and establishing enterprises. According to Moody, India’s limited multilateral liberalization with regard to regional trade agreements will also have an impact on foreign investments in the nation. The government’s initiatives to fight corruption, formalize economic activity, and improve tax administration and collection are positive, but the effectiveness of these initiatives is at danger, according to the rating agency.
The United Nations’ most recent World Economic Situation and Prospects report predicts that India’s GDP would grow by 5.8% in the calendar year 2023, driven by strong domestic demand. However, the research also highlighted how difficult investments and exports will continue to be due to the high cost of finance and sluggish external demand. According to Moody’s, if the measures are carried out successfully—including those put in place during the pandemic to make labor laws more flexible, increase agricultural sector productivity, increase infrastructure investment, encourage manufacturing sector investment, and fortify the financial sector—this will result in higher economic growth.