December 18th, 2012
02:37 PM GMT
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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.
The RBI has kept interest rates high in order to control inflation, but that's held back the development of new infrastructure, Bhalla says. "They have seen inflation coming down. They have seen growth collapse. They are still sticking with the most onerous the most restrictive monetary policy at any time in the world, so therefore what's any investor to do?"

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.

soundoff (7 Responses)
  1. HugoCorv

    "a young population and more than 1.2 people"

    December 18, 2012 at 4:00 pm |
  2. Joey


    December 18, 2012 at 4:12 pm |
  3. Joey

    "will now be growth"
    "after months and month"
    "more than 1.2 people"
    "This what he told us"

    Someone forgot to edit.

    December 18, 2012 at 4:16 pm |
  4. latinpeoplenews

    Reblogged this on Latin People News.

    December 19, 2012 at 12:08 am |
  5. Marco Hsiao

    [History and current foreign investments for India]

    India had a suffering history by the evil invasion of "British East Indian Company"; one Indian commentator (on Times of India) says it is "Eat India Company". Lots of India's ethnic groups and cultures are extinct by the company, lots of Indian treasury and natural resources are stolen by the company. Millions of good Indian people are exploited, and died in famine by the company.

    The company also makes rifts between Indian various ethnic groups and India with her neighboring countries. But immoral Britain still does not pay apology and compensation. (Immoral British made 10 million African black slaves for selling; tortured 3 million to die in British ships, Australia's Tasmanian Aborigines are also extinct forever by British).

    Thus India is worrying for foreign direct investment. Now India should make more economic cooperation with East Asian countries. However time is different more international interflowing will bring more progresses.

    December 19, 2012 at 2:19 am |
  6. Alex – enough said

    December 21, 2012 at 4:04 am |
  7. gautam banerjee

    Whatever may be the obstacles, there is a huge market waiting for all the goodies the Developed world has to offer. Therefore it makes sense to invest in India, with a population of one of the most peace-loving, in the whole world.

    December 22, 2012 at 7:58 am |

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