According to Russell, the reform cycle is always longer than expected. “We do expect to see a gradual improvement in investments. The interest rate is the key driver,” said Russell.
India’s growth has hovered around 7% this year. FDI levels rose 15% over this year’s first six months – about three times lower than in China.
Craig Botham, emerging markets economist at Schroders, said: “Demographically, India will overtake China. But it’s a country that has never really lived up to its potential due to its ardent bureaucracy. So making the bureaucracy more effective is needed, although I would say Modi has made significant progress here already. In addition, there are restrictive labour laws and foreign firms also have a hard time getting established.”
Botham points to the fact there are still a high number of stalled projects in the country. “The question is if Modi can push through,” said Botham. “The reforms will come through eventually. But I think people were way too optimistic about what he could achieve,” he added.
