Indian economy tops $3.5 tn: Moody’s warns about red tape obstructing growth

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While recognising that the Indian economy is expected to remain the fastest growing in the G20 and that it went past the $3.5 trillion mark last year, global ratings major Moody’s Investor Service warned in a research report that red tape could decelerate investments into India, where slow approval processes and licences lengthened gestation period for different projects.

Incidentally, on the last day of January this year, chief economic advisor V Anantha Nageswaran said that the country would have a $5-trillion economy by 2025-26.

Competition from Indonesia, Vietnam The New York-based ratings agency said that Indonesia and Vietnam would reduce India’s attraction as an FDI destination. Another red flag that Moody’s held out is that India’s capacity will continue to be behind that of its arch-rival China for the rest of the current decade even if demand across the manufacturing and infrastructure sectors in India grows 3-12% every year for the rest of the decade.

Regulatory delays According to Moody’s the shortcomings in India’s system would limit the immense potential before the country. The uncertainty and delay involved in land acquisition, regulatory clearances, obtaining licenses and setting up businesses can prolong gestation and nullify advantages, said the agency.

According to Moody’s the shortcomings in India’s system would limit the immense potential before the country. The uncertainty and delay involved in land acquisition, regulatory clearances, obtaining licenses and setting up businesses can prolong gestation and nullify advantages, said the agency.

Taking note of the government continuous efforts to tackle corruption, expand the scope of formal economic activities and boost tax revenues the agency also said that there are risks to the efficiency of these plans.

Incidentally, Moody’s had recently said that the huge domestic market of India is its principal driver for growth.

Demand for housing, cars In its report, the ratings major said the rising number of nuclear families and a huge brigade of educated workers would raise demand for housing, cement and new cars. The emphasis of the government on infrastructure would bolster demand for steel and cement and investments in renewable and non-conventional sources of energy will be triggered by the country’s net-zero commitment on carbon footprint.

The latest World Economic Situation and Prospects report of the UN said that India’s economy is expected to grow by 5.8% between January and December 2023.