Investor concerns: World Bank explains why investment has slowed in India

There is anxiety among investors not only on the pace and nature of economic reforms but also political stability in India, a top World Bank official has said.

This, he said, could be the possible reason for slowdown in investment, both domestic and foreign, in the country. “India is not starting from a position of collapse in investment in any way,” Martin Rama, chief economist (South Asia), World Bank, told a group of Indian reporters yesterday.

“But I think there certainly is in the minds of investors an expectation and anxiety on the progress on reforms and on the kind of stance that the new government would have - whether it would be a coalition government or not a coalition,” he said.

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“So there is wait and see,” Rama said in response to a question on whether the pace of investment in India is expected to remain slow. “That is a fact. We see the Finance Minister, P Chidambaram going to many countries trying to reassure investors and the commitment of the government to implement these reforms early is probably the right step to take,” Rama said.

A report on South Asian countries released by the World Bank yesterday said that India’s continuing slowdown is broad- based across sectors. “Vulnerabilities, mainly due to a wide current account deficit and high inflation, reducing macro buffers and increasing reliance on investment persists. Slower growth and tighter fiscal space may affect India’s progress towards universal health coverage,” the report said.

Responding to questions on the budget, Rama said Chidambaram took a “delicate balanced” approach on the Budget. “It had to express concerns about macroeconomic stability and it did so in what seems to be an effective way,” he said.

“It is important to give a sense of stability and this is what the government did in this budget.” Rama said India is one of the few countries in the region where real interest rates are positive. “It is also clear that inflation news have been relatively good,” he added.

According to the World Bank report, South Asia is regaining its economic momentum, but the recovery in the world’s region with the largest number of poor people could falter in the absence of a stronger investment climate.

The report noted that the combined growth of India, Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, and Sri Lanka was just 4.7 percent in 2012, substantially below pre-crisis levels.

A pick-up to 5.5 percent (in this region) can be expected in 2013 with ongoing efforts to regain fiscal space and boost private investment. But given the uncertain global environment, it will be important to strengthen the investment climate, it added.

PTI