official statistician of india informed of 13.5% growth in the April to June quarter this year. This meant the country that rose to the top spot as the world’s fastest growing large economy – and coincidentally, replaced Great Britain as the fifth largest economy in the world.
Unfortunately, this is where the good news about India’s growth prospects ends. Those GDP numbers were indeed a disappointment, given that India had shut down in the same quarter last year amid its devastating delta-driven Covid wave; A Bloomberg poll of economists expects growth of more than 15%.
In the past three years, in fact, India’s GDP has grown by just over 3% – and fewer 4% from the last quarter before the pandemic. This fiscal year – which ends in March 2023 – is unlikely to break any records: most now expect real growth do not reach 7% less than base.
If you look for reasons to be optimistic, you can find them. For example, capacity utilization in Indian manufacturing has recently reached 75%, the highest in nearly a decade.
Some economists expect this to mean that the problem of the Indian macro-economy for the past decade – anemic private sector investment – will cease to hinder growth.
So far Investment Figures as a percentage of inflation-adjusted GDP remain at par, down 2.5 percentage points from before the pandemic.
Some Indian officials think the return to higher investment and growth is only a matter of time, and positive policy changes in the past few years – from indirect tax reform to new industrial policies that focus on domestic manufacturing – are bearing fruit. Will give medium term.
But we’ve heard that line many times before.
If it hopes to return to the high growth trajectory, India simply cannot succumb to complacency. Something important is still missing in the country’s policy mix: a proper understanding of what investors really need.
In a world of rising interest rates and risk appetiteThere are still not enough investible projects with the right risk-return profile available in India.
A lot of capital continues to flow into India, but mainly towards risk-tolerant sources such as private equity, or companies that are better able to manage political risk such as Adani Enterprises Ltd.
Companies that support job growth and macroeconomic growth – in the small enterprise or infrastructure sector, for example – don’t see as much.
Even global portfolio investors have noted that, in the last 10 yearsIndian equities have not delivered better returns than the more transparent US market.
Increasing access to Indian private sector capital by mitigating environmental risks should be the number 1 priority of the government.
This requires the implementation of reforms that are well understood and advocated for years, but have been shifted to the back burner compared to the more high-profile subsidies and interventionist policies.
For example, administrative and judicial reforms are overdue. Dispute resolution remains a nightmare in India.
According to the World Bank’s 2020 Ease of Doing Business report, India ranks 163rd in the world in contract enforcement. it took one average 1,445 days to resolve commercial disputes through the court system.
The World Bank has since stopped publishing its independent assessment of the business environment, and the Indian government says these numbers have improved since then.
But investors in India still fear going to court. With the National Company Law Tribunal even the government’s historic bankruptcy process has slowed Saying Last month it would hear only “urgent” cases as 30 of its 63 judicial slots are vacant.
One way to make up for the lack of judicial and administrative reforms would be to provide more space for arbitration, including international arbitration.
But India shifted in the opposite direction over the past decade, moving out of unilateral bilateral investment treaties to consolidate the primacy of domestic courts. Those policies were short-sighted and should be reversed.
The global mood has changed. India needs to show investors not only that they can earn good returns in the country but also that their money is safe here.
This requires an entirely different set of reforms that have been eased by the government so far.
Unless policy makers focus on changing the overall risk profile for investing in India, there is little chance that they will get private investment to the levels necessary for sustained and transformative high growth.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)