India has become a go-to destination for many investors. One reason, economists and analysts say, is that India is doing better than many other countries during a period of economic uncertainty.
But research shows that India still has a long way to go in building infrastructure and enacting reforms that can attract foreign investors.
“The Indian economy is holding up better than most other economies around the world,” Aswas Damodaran, a finance professor at NYU’s Stern School of Business, told CNBC’s “Street Signs Asia” last week.
“It’s held up in terms of growth and robustness, and it’s attracting money. Where else can the money go? I have to go somewhere.”
“The reality is that India benefits from both having an extraordinary economy and being a place where capital moves, and that too could change over time. I can understand why is an attractive market for many foreign institutional investors..”
Indian Prime Minister Narendra Modi plans to make India a $5 trillion economy by 2024-2025.
Bloomberg | Bloomberg | Bloomberg | Bloomberg | Getty Images
Shrinking GDP projections
India’s GDP growth forecast for 2022 continues to decline, dropping to around 6% given global headwinds such as rising interest rates that make a recession more likely.
The United Nations Conference on Trade and Development said India’s GDP growth will slow to 5.7% in 2022 after reaching 8.2% in 2021. In 2023, we forecast a lower growth rate of 4.7%. The World Bank also cut her 2022-23 GDP growth forecast for India to 6.5% from her previous estimate of 7.5%.
Despite being downgraded, India’s growth projections remain lower than the rest of the Asia-Pacific region. ASEAN+3 (which includes China, Japan and South Korea), for example, is expected to grow by 3.7% this year, the ASEAN+3 Macroeconomic Research Office reported last week, but economists put China’s growth projections behind him. pushed down between 2% of and 4%.
In recent months, Indian business leaders such as Indian Prime Minister Narendra Modi and billionaire Gautam Adani have stepped up marketing of India to global investors.
Prime Minister Modi plans to make India a $5 trillion economy by 2024-2025, and Adani said at a recent Forbes conference in Singapore that India is on track to become a $3 trillion economy over the next 25 years. said it would be a $30 trillion economy.
However, in a study conducted last year to test Modi’s $5 trillion target, Deloitte India found that while the country is a favored destination for foreign direct investment, more reforms are needed to reach that target. He said it should be enacted.
The report highlights the need for more FDI in the manufacturing sector, with most of the investment being driven by the services sector, with manufacturing attracting only about a third of the money put into services. I added no.
Workers prepare the vermicelli used in the traditional sweet dish consumed during the holy month of Ramadan at a factory in Allahabad on April 13, 2021.
Sanjay Kanozia | Afp | Getty Images
Moreover, most of the 1,200 business leaders surveyed by Deloitte say it is more difficult to do business in India compared to countries such as China and Vietnam.
Business leaders in India’s real estate, industry and utilities sectors find it particularly difficult to invest due to low institutional stability and inadequate infrastructure.
“Though perceptions of China have taken a hit over the past year, China remains a close competitor to India as a destination for capital spending among US investors,” the report said.
That said, India’s reforms have improved over the years and are moving in the right direction, said Sasidaran Gopalan, assistant professor of economics at the United Arab Emirates University.
Nonetheless, Gopalan agreed that India “stands out in both the backyard and other emerging markets,” but said it wasn’t “the only game in town.”
Lee Kuan Yew S.Ramkishen Rajan, a professor at the School of Public Policy in Singapore, acknowledged that India’s underdeveloped reforms and infrastructure push is attracting investors’ attention, but said its trade protectionism remains a drawback.
“In short, India is experiencing a combination of good policies and good luck right now. So overall I understand the bullishness on India, albeit with caveats,” Rajan said.
“While FDI regulations have been relaxed, India’s reluctance to accept greater trade liberalization, including participation in regional trade agreements, has limited the scope for labor-intensive manufacturing to enter India. It may interfere.”
That would prevent the country from taking full advantage of its “demographic bonus,” Rajan said.