Even Indians not interested in investing in India: Surjit Bhalla on state of economy

Even as India's economy faces mounting pressure from rising crude oil prices and disruptions in fertiliser and energy supplies, economist and author Surjit Bhalla has identified a worsening investment climate as the country's biggest challenge.

The Indian economy is facing headwinds with soaring prices of crude and disruptions in supply of fertiliser and petroleum products due to the war in the Middle East. The Indian rupee touched a lifetime low of 96.38 against the US dollar. While rejecting a rise in extreme poverty levels, economist and author Surjit Bhalla told India Today TV that the investment climate in the country was "very bad".

The war against Iran, which resulted in the choking of the Strait of Hormuz, a critical energy shipping lane, has impacted economies across the world negatively. There are fears that the economic gains made in the last couple of decades, in which a large section of the world's population had been pulled out of extreme poverty, might get squandered.

Prime Minister Narendra Modi had in the Netherlands on May 17 warned that "the decade of disasters" risked pushing a "huge section of the world's population back into poverty".

India Today TV's Consulting Editor Rajdeep Sardesai asked Surjit Bhalla if that could also be true in India's case.

"India's case, I think we are well above the extreme poverty level in terms of, or well below it, in terms of the percentage of people that are there," Bhalla said. He said there were several factors, including an elaborate system of freebies and food subsides, that were keeping poverty down in India.

Bhalla, however, batted for the same food subsidies to be cut.

"Now, all of these things, as far as poverty is concerned, we have too elaborate a system of freebies, of food. So I think to allude to, you know, perhaps he's pointing out that maybe we should cut the food subsidies, something I would fully support. It doesn't make any sense for 800 million people to get free food in India," said Bhalla.

The economist was till some time ago the Executive Director for India at the International Monetary Fund (IMF). He was also a former part-time member of the PM's Economic Advisory Council (PMEAC).

Surjit Bhalla also spoke about the negative investment environment in the country, saying not just foreigners, even Indians weren't investing in India. He blamed that on the foreign direct investment (FDI) laws brought in 2017.

"In India's case, something has happened, and we can discuss that, about our growth process. Investment is not taking place. Private investment is not taking place. And, if you will, FDI has really declined into negative territory," said Bhalla.

"What has bothered me for quite some time is what's happening to investment, and in particular, foreign direct investment. We've got strange rules, which no other country has in terms of FDI. So the investment climate in India has really gone negative, and that is well known. So I think that is what, and the foreigners are not interested in investing in India. Indians are not interested in investing in India," he added.

India is seeing a balance of payments (BoP) deficit since the last three years. While the current account, which consists of trade and services, had always seen a deficit, the capital account had also gone into the negative. That has been blamed on the withdrawal of funds by the foreign institutional investors (FIIs).

"The investment climate in India is very bad, and that is what has gone wrong," said Bhalla.

The economist also warned on India's growth story. The country had been among the fastest growing economies in the world.

"Six months ago or so, I gave a talk, a keynote speech, as to why the Vikshit Bharat slogan should now be changed, just like I think the slogan that we are the fastest growing economy, major economy in the world, should be changed. We are not."

"I will say poverty is the least of our problems. Our problem is growth. If growth continues this way, then poverty will also become our problem," said Bhalla.

In a separate post on X, Surjit Bhalla explained why FDI inflows into India had gone into the red.

"India major trap – Very restrictive FDI policy since 2017. Foreign direct investment rates (% to GDP) have significantly declined since the abolition of Bilateral Investment Treaties (BITs) which began in 2017; Policy now is for FDI investment disputes to be settled in India, not third party," Bhalla explained, adding that India's legal system was "still at poor country level".

Bhalla said estimates suggest that about 30% of the decline in FDI could be attributed to the suspension of BITs.

"FDI helps in not just adding to investment rates, but also significantly to innovation and technical change," he said.

On India Today TV, Bhalla said he believed the government was "in a great comfort zone" due to the electoral victories.

"So, I think what is happening is that the government is in a great comfort zone, because it's winning all the elections. So it doesn't see any urgency or need to do reforms, especially on the growth side," said Bhalla.

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