In 2022, India’s GDP will have surpassed USD 3.5 trillion, making it the fastest-growing G-20 economy over the following few years, according to a report from Moody’s released on Tuesday. However, reform and regulatory barriers may prevent investment. The rating agency that is located in the United States claimed in a study paper that bureaucracy might hinder approval procedures for getting licences and setting up firms, which would lengthen the gestation period 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.
It was said that the need for houses, cement, and new automobiles would be fueled by a large, young, and educated workforce, an increase in nuclear families, and urbanisation.
According to the report, increased expenditure on public infrastructure would boost the steel and cement industries, while India’s goal of achieving net-zero emissions would stimulate 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 was said that despite the robust potential of the economy, there is a possibility that the rate of investment in India’s industrial and infrastructure sectors might slow down as a result of restricted economic liberalisation or delayed policy execution.
“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. Furthermore, India’s limited multilateral liberalisation with respect to regional trade agreements will also weigh on foreign investments in the country,” it said.
It is heartening to see the Indian government’s ongoing attempts to combat corruption, formalise economic activity, and improve tax collection and administration. Despite the fact that there are growing threats to the effectiveness of these efforts, they should be supported.
According to Moody’s, if the measures that have been taken over the past few years are effectively implemented, this will lead to higher economic growth. These measures include those that were taken during the pandemic to increase the flexibility of labour laws, raise the efficiency of the agricultural sector, expand investment in infrastructure, provide incentives for investment in the manufacturing sector, and strengthen the financial sector.