Numbers don't always tell the real story. This is evident from the recent gains that Indian stock markets are witnessing. Despite the mess in the economy and no near term positive triggers, the markets are touching new highs. This is hardly any factor to rejoice because most of these are on account of hot money finding its way into the country.
The US' recent decision to postpone the tapering has renewed foreign instituitional investors' interest in Indian stock markets that have returned in search of relatively higher gains. In contrast, the fundamentals back home hardly seem to have improved. Due to multiple blocks like lack of reforms, poor policies and bureaucratic delays, the investment climate in the country remains bleak. Unless the new investment projects take off, the growth in the economy is likely to remain muted. In short, there is no solid reason for foreign investors to remain invested. It is just a matter of time before these big investors pull out their money out of the country.
As an article in Business Standard suggests that things would have been different if we could instill confidence in the country's real productive capacity and received more of foreign direct investment instead. With around 6.7% year on year growth in FDI in the first seven months of the year, statistics might not portray too dismal a picture in this regard. However, on going a little deep, one would realize that this growth is quite skewed; and has mainly happened on account of a few big MNCs raising stake in their respective Indian arms.
What the numbers do not capture is the huge opportunity loss that the country has seen on account of failure of ambitious projects like Posco's Karnataka steel plant and Arcelor Mittal's in Odisha. Because of the lack of friendly investing climate and complex policies, India has not seen much investment despite the relaxation in FDI limits.
The only way out it seems is for the government to take timely action to kick start the stalled projects and rekindle the interest of the global investors in the domestic economy.