The proximate risks of roiling investor sentiments are two principal factors: policy inconsistency and political instability. Investors want hassle-free entry into any economy to park their funds in.
India continues to be seen as a dodgy destination for anyone wanting to do business there, a fact that any government can ignore only at its own peril. Red-tape and inter-ministerial differences are resulting in delayed decision-making, which in turn has hurt business sentiment. India ranks towards the bottom of the World Bank’s latest ‘Doing Business’ report.
Investment decisions are well thought out and are predicated on a variety of factors including global perceptions about the destination country. Importantly, we cannot lose sight of the fact that India will be competing with other emerging nations to attract from the same pool of dollars.
From a foreign investors’ darling to a slowing economy prone to risky policy flip-flops, the turnabout of India’s image has been rapid. Stalled reforms, policy missteps, mounting deficits, galloping inflation, fractious politics and creaky infrastructure — the rough edges are coming off.
Deepening economic gloom is causing unease among business. For millions of Indians the last 12 months of high prices and low income growth have hurt. That has slowed consumption and corporate spending and sparked a series of slowdown cycles. Costly borrowing and inputs have dampened investment activity.
India’s policy-makers have been hemmed in global criticism of delayed reforms and growing internal concerns of policy paralysis in the backdrop of a slowing, high inflation economy.
Global agencies have also been unsparing in their criticism about the government’s economic management. Consistent policies and reforms, as was seen two decades ago, can herald entrepreneurship, employment, income and spending. For a better part over the last three years, policy gridlock hadn’t done India’s reputation any good. It would be in India’s best interests to soothe the frayed nerves of investors through some brave and bold steps that are needed to turn the tide.