New Delhi, 01 October (H.S.): India, like other developing economies, is facing significant challenges in attracting capital inflows. Amid the crisis in West Asia, continuing uncertainty over trade relations with the United States, a rise in crude oil prices and limited opportunities for India arising from global developments in artificial intelligence (AI), the country’s ability to attract investment is being affected.
The observation was made in a report released by the Ministry of Finance on Thursday. According to the ministry’s Monthly Economic Review, attracting foreign capital has become a challenging task for India amid global trade uncertainties and fluctuations in crude oil prices. Investor sentiment remains cautious in this uncertain environment, although domestic GDP growth has remained strong.
The ministry’s September Monthly Economic Review said that high-frequency economic indicators, including GST collections and export figures for July and August this year, point to some moderation in the pace of economic activity following strong GDP growth of 7.8 per cent in the April-June quarter.
The report noted that global conditions have once again turned adverse. Crude oil prices rose in September, while the Indian currency has remained under near-term pressure.
The Ministry of Finance said in its monthly economic review that global and resulting economic uncertainties mean India cannot rely solely on the growth gains achieved in the post-COVID-19 period. Such gains will have to be earned every quarter, and this remains a key challenge for policymakers.
The report also highlighted the need to make the Indian economy “more competition-friendly rather than merely business-friendly”. It said that only a competitive economy can evolve into a successful, innovative and manufacturing-oriented economy.
“Unstable” trade relations with the United States, shifts in global capital investment and cross-border capital flows driven by artificial intelligence, and competition among developed economies to attract investment for their own manufacturing ambitions have increased the challenges facing developing countries.
The report indicated that net foreign direct investment (FDI) inflows could be better in the current financial year than in the previous year. It also said that the resilience of the Indian economy in a challenging global environment remains a major strength for the country.
According to the ministry, investors are likely to place greater value over time on the resilience of the Indian economy during the post-COVID years and its sustained high growth rate. At present, investor interest in India has not diminished, but investors remain cautious.
The monthly review said that the status of trade relations with the United States, tariff-related pressures, uncertainty over crude oil prices and supplies, and the lack of India-specific opportunities arising from global developments in artificial intelligence are affecting the country’s attractiveness as an investment destination.
The report also warned that despite outward signs of mutual cooperation, global polarisation could intensify and the strategic use of global supply chains could become more pronounced. Emerging disruptions in global supplies are already being seen across sectors such as energy, metals, electronics, food and semiconductors.
The simultaneous intensification of climate-related, geopolitical and monetary pressures could increase inflation risks for the Indian economy, the report cautioned. Inflation resulting from supply-side shocks could, in turn, weigh on economic growth.
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Hindusthan Samachar / Jun Sarkar
