India has a “long way” to go before it matches China’s role in the Asia-Pacific region’s trade and investment flows, a UN report said on Tuesday.
The country’s success will depend on its ability to speed up implementation of necessary structural reforms, it added.
The Asia-Pacific Trade and Investment Report 2015 by the UN Economic and Social Commission for Asia and the Pacific said India faces various structural bottlenecks, including delays in project approval, ill-targeted subsidies, a low manufacturing base and low agricultural productivity, difficulty in land acquisition, weak transportation and power networks, strict labour regulations and skill mismatches.
“India still has a long way to go to match China’s role in the region’s trade and investment flows. India’s success will depend on its ability to accelerate the implementation of necessary structural reforms in order to improve its business and investment environment,” it read.
The report added that in 2014, India attracted FDI inflows amounting to $34 billion, a 22% increase.
While this development is encouraging, the amounts received are about a quarter of total FDI received in China in 2014, the report said.
The Narendra Modi-led government has liberalised FDI in sectors such as defence, railways, construction development, medical devices and insurance since coming to power in 2014, it said.
The government is pursuing simplification of the business environment by reducing excessive regulation and increasing predictability in the country’s trade and investment regimes, the report added, adding that the ‘Make in India’ programme could attract FDI in the manufacturing sector.
FDI outflows from India picked up from a very low level in 2013, bouncing back to $9.8 billion in 2014.
In south and south-west Asia, India accounted for more than 50% of trade in that region.
The improved growth momentum of India amid China’s economic slowdown leads to the expectation that India may offer a new hope for regional and global economy.
IMF expects that India will overtake China as the fastest growing economy in the world in 2015.
It is expected that the growth momentum of India will be sustained by economic reforms, a consequent pickup in investment and lower oil prices.
In addition, population growth adds to its growth potential.
The report cited IMF projections that India is expected to have the largest labour force in the world by 2030, with about one billion people of working age.
However, India is still not in a position to support global, regional trade and investment flows as China did, it said.