December 18th, 2012
02:37 PM GMT
London (CNN) - India's central bank says its policy focus will now be growth, after months and month of battling stubbornly high inflation.
"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards," the Reserve Bank of India wrote after choosing to leave its key interest rate on hold at 8% Tuesday.
The announcement comes just one day after the country's finance ministry downgraded its growth forecast for the full year 2012-2013, to between 5.7% and 5.9% from 7.6%. While that might sound like an impressive growth rate for many of the world's developed countries, for India, it will be the slowest in almost a decade.
India's government has said that attracting more foreign direct investment would help to spur the country's growth, but it's had trouble bringing that about.
With rising incomes, a young population and more than 1.2 people, India's market looks promising from the outside but the country's full of roadblocks for foreign companies.
CNN spoke to Surjit Bhalla, the chairman of Oxus Investments, about what he sees as the biggest obstacles facing foreign investors. This what he told us.
Firstly, uncertainty around policy. Bhalla says the actions of India's policy makers are impossible to predict. "Our policy makers do not react according to any known policy reaction function, any known logic if you will," he says. A recent cabinet decision to allow foreign multibrand retailers like Walmart and Tesco to enter India and sell directly to the Indian consumer was held up in parliament for months. Legislators finally cleared it just over a week ago.
He then pointed to regulatory hurdles. Any foreign investor, whether institution or private, needs a license to invest in India and they can be very hard to obtain, Bhalla said. According to Bhalla, while the government may say they welcome foreign investment, they don't make it easy. "No other country has as stringent portfolio investment laws as we have in India licensing laws," he told CNN.
Finally, a lack of good infrastructure. India's infamous for its crumbling roads, inconsistent power and water supply problems. A blackout earlier this year left nearly half the country in the dark.
There are hopes for an economic pick-up in 2013 with the government planning structural reforms and key infrastructure projects, but nothing in India is fast or, as Bhalla says, predictable.
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