Official statisticians of India mentioned 13.5% growth in the April-June quarter of this year. This means that the country ranked first as the fastest growing large economy in the world – and by the way, it 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 actually disappointing, given that the same quarter last year saw India shut down amid the devastating delta-driven Covid wave. A Bloomberg survey of economists forecast growth of more than 15%.
Over the past three years, in fact, India’s GDP has grown by just over 3% – and less than 4% since the last quarter before the pandemic. This fiscal year – which will end in March 2023 – is unlikely to break any records- most now expect real growth to happen not up to 7% Even from a low base.
If you are looking for reasons to be optimistic, you can find them. For example, capacity utilization in Indian manufacturing recently reached 75%, its highest level in nearly a decade.
Some economists hope this means that the problem that has plagued India’s macro economy for the past decade – meager private sector investment – will cease to be a constraint on growth.
Until now investment The numbers as a percentage of inflation-adjusted GDP are still below average, 2.5 percentage points lower than they were before the pandemic.
Some Indian officials believe that the return of investment and high growth is only a matter of time, and that positive policy changes over the past few years – from indirect tax reform to new industrial policies focused on domestic manufacturing – will pay off in the medium term.
But we’ve heard this line many times before.
If India hopes to return to the path of high growth, India simply cannot succumb to complacency. There is still something important missing in the country’s policy mix- a proper understanding of what investors really need.
In a world where interest rates are rising and risk sentimentThere are still enough investable projects available in India with the right risk and return profile.
A lot of capital continues to flow into India but mainly from sources of risk taking such as private equity, or towards companies believed to be able to manage political risks such as Adani Enterprises Ltd.
Companies that support job growth and broader economic growth — small businesses or those in the infrastructure sector, for example — don’t get the same amount of attention.
Even global portfolio investors have noticed that, Over the past ten yearsIndian stocks have not had better returns than the more transparent US market.
Expanding the Indian private sector’s access to capital by reducing environmental risks should be the government’s first priority in the future.
This requires the implementation of well-understood reforms that have been advocated for years, but turned against the background compared to high-profile subsidies and interventionist policies.
Administrative and judicial reforms, for example, are long overdue. Conflict resolution in India remains a nightmare.
According to the World Bank’s Ease of Doing Business 2020 report, India ranked 163rd in the world in contract execution. it takes modified 1445 days to resolve commercial disputes through the court system.
The World Bank has since stopped publishing its independent assessments of the business climate, and the Indian government insists those numbers have since improved.
But investors in India still have a well-founded fear of going to court. Even the high-profile government bankruptcy process has slowed to a crawl, with the National Corporate Law Court say Last month, it said it would only consider “urgent” cases because 30 of the 63 court deadlines remain vacant.
One way to compensate for the lack of judicial and administrative reforms is to make more room for arbitration, including international arbitration.
But India has turned in the opposite direction over the past decade, unilaterally breaking out of bilateral investment treaties and moving to strengthen the primacy of domestic courts. Those policies were shortsighted and should be reversed.
The global mood has changed. India needs to show investors not only that they can make good returns in the country but that their money is safe here.
This requires a very different set of reforms than the government has been comfortable with so far.
Unless policy makers set out to change the public risk profile of investment in India, there is little chance that private investment will reach the levels needed for sustainable and transformative high growth.
(Except for the headline, this story has not been edited by the NDTV crew and is published from a syndicated feed.)