India is expected to remain one of the fastest growing emerging markets with real GDP growth averaging 6.5 per cent over the next five fiscals, though bureaucratic inefficiencies will continue to cap the country’s growth potential, says a report.
According to a report by BMI Research, a Fitch Group company, while India’s ease of doing business ranking has improved, significant bureaucratic inefficiencies are likely to cap the country’s growth potential further.
“We believe that the ongoing economic reforms and improvements to the business environment will continue to support India’s economic growth over the coming years, and we expect the country to be one of the best performing emerging market economies, with real GDP growth set to average 6.5 per cent over the next five fiscal years,” the report said.
However, the improvement in the ranking masks the fact that bureaucratic inefficiencies remain rife, as indicated by the stalling of the 2015 Land Acquisition Bill in Parliament and a massive backlog of unresolved cases in courts.
“In our view, these issues are likely to continue to cap India’s growth potential below the 7 per cent level over the coming years, and the country is likely to continue facing challenges in completing large-scale infrastructure projects and establishing a strong manufacturing base,” it added.
India’s ranking on the World Bank’s 2018 Ease of Doing Business index improved significantly to 100/190 countries – a 30 notch jump from its previous position.
Moreover, there has been a surge in foreign investment, which is likely to continue at a steady pace as global firms look to tap into India’s vast market potential, the report said adding that pro-business and pro-investor policies are likely to encourage investment.
“A more favourable business environment is likely to encourage a pick-up in private investment growth, which has been lacklustre due to poor business environment, as well as heavily leveraged businesses that were unable and unwilling to increase capital investments, particularly large industrial corporates (such as steel and coal), which were hit hard by weaker commodity prices,” the report noted.
As per the report, insolvency regulation is a positive step in cleaning up the financial system in the country. Furthermore, tax reforms will help strengthen India’s fiscal revenues.