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Late last year we wrote that India’s economic decline was one of the most under reported stories of the year and showed that investors were fleeing India.In a new note, Jefferies analysts Nilesh Jasani and Piyush Nahar write that India’s economic slowdown has been driven by a collapse in the investment cycle that is “far from being played out.”
Jasani and Nahar write that India suffers from having a risk-averse investor class, and local companies seem to prefer investing in Africa and Europe over India.
The problem in India is that weak real economic prospects are causing investors to crawl into a shell, while lack of investments continue to stunt GDP growth, worsen supply-side shortages, drive up inflation, hurt job creations etc. Jasani and Nahar:
“And the above two are feeding each other with a lot worse in store if this circularity is not broken. For example, the external account deficits cannot weather global investors’ indifferent or worse attitude. Banks’ balance sheets have not provided for even existing distress let alone anything worse. Fiscal deficit, as we show later, is more a function of growth than budget intent. Even political and social risks will only rise if growth falters further.”