Moody’s Investors Service cautioned on Tuesday that reform and policy barriers in India could hamper investments in the country, even though it will be the fastest-growing G-20 economy over the next few years thanks to its growing manufacturing and infrastructure sectors.
Noting that India is now the world’s most populous country, the global rating major expects rising per capita incomes and the country’s large young and educated workforce will fuel demand for housing, cement and new cars, with public infrastructure spends spurring cement and steel output.
“Larger production capacity will raise rated companies’ competitiveness in these sectors, a credit positive if they manage execution risks with financial discipline,” Moody’s said, adding that new investments will have to be funded mostly through banks and domestic bond markets owing to the central bank’s cost ceiling restrictions on foreign currency borrowings.
“Despite the positive backdrop, bureaucracy could slow approval processes in obtaining licenses and setting up businesses, prolonging project gestation. This would reduce India’s attractiveness as a destination for investment, especially when competing with other developing economies such as Indonesia and Vietnam,” the agency underlined in a research note titled ‘Growing industrial sector will drive economy, but may face investment hurdles’.
The agency was still optimistic that India will achieve significant scale across multiple sectors by 2030 but still rank well behind China, with demand across the manufacturing and infrastructure sectors expected to grow 3%-12% annually for the rest of this decade.
“Leading companies will invest around $150 billion in additional capacity, requiring access to multiple funding sources, but most rated companies can tolerate a rise in debt,” it added.
