India’s economy is expected to grow just 5.1 percent in 2013-14 and remain below 7 percent in fiscal year 2014, according to one leading analyst.
IHS Global Insight believes India’s economy will continue to be buffeted by the economic turbulence that has seen the Indian rupee hit several record lows against the dollar and industrial output slow.
Inflation is also spiraling, and there are few obvious drivers of an economic upturn in the short-term to suggest a return to the growth rates above 8 percent achieved every year except one in fiscal years 2003-2010.
“With a general election due by April-May 2014, political risk and uncertainty in relation to the composition and leadership of the next Indian government is also increasing,” IHS said in a note.
Foreign investors have become increasingly vocal about the macroeconomic vulnerabilities and poor business climate in India. Weak transport and trade infrastructure, the regulatory burden of red tape and complex hurdles of approval for greenfield industrial projects are all frequently cited by business leaders as obstacles to growth and investment.
“India’s weak infrastructure is one of the most important factors that acts as a brake on growth, in crucial areas such as power generation, water supply, and a wide spectrum of transport-related infrastructure, including ports, rail, roads and airports,” said IHS.
“A number of large, high-profile greenfield manufacturing investment projects have also suffered protracted delays due to a range of factors such as government regulatory processes and protests by local landowners.”
Although foreign direct investment into segments such as IT, business process outsourcing, and financial services are less vulnerable to delays, IHS said FDI inflows into manufacturing are of strategic economic significance.
“India needs to lift the competitiveness and size of its manufacturing sector in order to generate rapid growth in manufacturing employment,” the analyst said. “The difficulties some large new foreign manufacturing projects have faced in establishing operations in India are therefore particularly damaging to India’s economic development.”
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