Investors want to support India

May 1, 2012 | Last updated on May 1, 2012
2 min read

Over the past few months, India has received a strong pushback from international investors due to its out of sync international investment tax policies, which have done nothing to aid its ailing economy.

Along with some investors questioning the costs and benefits of investing in India, its economy has been slowing down in the past year due to a volatile external environment and monetary tightening.

In particular, the slowing growth of Asian fixed capital from infrastructure and manufacturing, due to the current high interest rate environment and the political uncertainty caused by the Chinese election, has had a negative impact on economic improvement in India.

Progress is expected to bottom out in the first quarter of the year as the central bank starts to cut interest rates.

Overall, investors are concerned with unstable interest rates and are looking for clearer government policy regarding foreign investments. As a result of their doubts and concerns, investment growth has remained low.

“Consumer consumption, which accounts for 65% of India’s GDP, has been stable and done little to support further economic growth,” says Raymond Chan, chief investment officer of Hong Kong-based Hamon Investment Group, sub-advisor to the Renaissance Asian Fund. “Over the past couple quarters, growth has decreased from 8% to around 6.5%—doubts are coming from the slowdown of the fixed capital formation.”

These issues aside, however, future economic improvement is expected. While current growth rates are indeed much lower than investors and economists originally expected, Chan asserts investors haven’t given up quite yet.

“The opportunity and potential for growth is huge,” says Chan.” But many industries are still very protected. There are complicated regulations, but international investors do still appreciate the long-term potential of the country.”

He adds, “many are actively lobbying the government so they can more easily participate in the economy in India,” which will help the country expand and develop.

Multinational investors continue to participate in Indian industry and are “actively pursuing the consumer side and the retail side, among others, due to the potential they see in the upcoming decade.”