What’s Troubling India?

Just a couple of years ago, India was developing a reputation as an attractive investment location, with heads of state virtually tripping over one another to meet business leaders in Mumbai and pave the way for further trade and investment. Now their interest has faded, along with India's macroeconomic numbers.

CAMBRIDGE – India’s recent fall from macroeconomic grace is a lamentable turn of events. After many years of outperformance, GDP growth has slowed sharply. Annual output will most likely rise by less than 5% this year, down from 6.8% in 2011 and 10.1% in 2010.

Reform has stalled amid profound political paralysis. All of the major emerging economies face weakening external demand, but India’s slowdown has been exacerbated by a drop in investment that reflects a deeper loss of official direction and business confidence. Even the International Monetary Fund’s forecast of a modest improvement in 2013 is predicated on the government’s ability to breathe life into a spate of stalled economic reforms.

India’s recent torpor has underpinned a remarkable shift in global opinion. Just a couple of years ago, India was developing a reputation as the cool place to invest. Heads of state tripped over one another to meet business leaders in Mumbai, hoping to pave the way for a significant expansion of trade and investment. Now their interest has faded, along with the macroeconomic numbers.

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