With GDP surpassing $3.5 trn in 2022, India to be fastest-growing G20 economy: Moody's

However, Moody's also highlighted that investment could be hindered by obstacles related to reforms and policies.

In a research report, Moody’s said, "India's higher bureaucracy in decision-making will reduce its attractiveness as a destination for foreign direct investment (FDI), especially when competing with other developing economies in the region, such as Indonesia and Vietnam," Moody's Investors Service said.

According to Moody's, the demand for housing, cement, and new cars in India is expected to be bolstered by a massive chunk of young and educated workforce, the growth of nuclear families, and urbanization.

Despite acknowledging the strong potential of India's economy, Moody's highlights a potential risk of slower investment in the manufacturing and infrastructure sectors. This risk arises from limited economic liberalisation and slower policy implementation, which could impede the pace of growth in these sectors.

"Lack of certainty around the amount of time needed for land acquisition approvals, regulatory clearances, obtaining licenses and setting up businesses can materially prolong project gestation. Furthermore, India's limited multilateral liberalisation with respect to regional trade agreements will also weigh on foreign investments in the country," it said.

The ongoing efforts by the Indian government to combat corruption, formalize economic activity, and strengthen tax collection and administration are seen as positive developments. However, Moody's warns that there are growing risks to the effectiveness of these efforts.

If implemented effectively, measures undertaken over the last few years – including those introduced during the pandemic to increase the flexibility of labour laws, raise agricultural sector efficiency, expand investment in infrastructure, incentivize manufacturing sector investment, and strengthen the financial sector – would lead to higher economic growth, Moody's said.