Now, foreign investors warn against 'policy paralysis'
Asserting that factors like a slow decision-making process and delay in implementing key economic reforms are leading to a slowdown in economic growth rate, the experts have asked the government to immediately gear up to benefit from the underlying positive points of the India story.
CLSA, one of the top investment banks in Asia and a major foreign investor here, has said in a strong-worded report on the country that "the government's policy paralysis in the last year has added to the cyclical slowdown."
Noting that the economic growth may have accelerated despite a "lethargic reform agenda" since 2004, when UPA-I came to the power, CLSA said that attractiveness of a strong structural story does not eliminate cyclical headwinds.
"UPA-II has been embroiled in corruption scandals and is balancing the trade-off between environment issues, corruption, growth and vote-bank politics," it added.
Another major foreign investment bank and research firm Macqquarie has downgraded India's economic growth forecast for the next fiscal to below 7 per cent and has warned that the country's GDP expansion outlook is on a "slippery slope".
Macquarie has cited "lack of policy reforms" and political compulsions as key reasons for the downgrade of its GDP growth projection for the fiscal FY 2012-13, beginning April, 2012, to to 6.9 percent, from 7.9 percent previously.
The concerns over the perceived policy paralysis and 'governance deficit' in various government departments has already been raised by a host of leading industrialists, including Mukesh Ambani, Naveen Jindal, Azim Premji, Keshub Mahindra and Deepak Parekh in the recent weeks.
Global rating agency Standard and Poor's has also warned that the infrastructure development in the country is being hit hard by a slow pace of reforms and limited long-term funding options, and this trend can deter the economic growth.
Officials of another rating agency Moody's recently came here for review of their sovereign rating for India and the government officials are believed to have pitched hard for an upgrade, while rejecting any policy inaction on their part.
Macqaurie, in a report on Indian economy, said weak investor confidence on governance issues, hindrances to the project execution and weak global capital markets were increasing the funding risks for Indian companies.
Moreover, elections and political issues are likely to further crowd out private corporate capex as the government will largely pursue populist reforms over the next 6 to 8 months and could delay the tough reforms, it noted.