As uncertainties mount over China, India promises edge in global business environment: EIU report

India now has a business environment that can compete with that of China and the rest of Southeast Asia, and could attract more foreign investments, the Economist Intelligence Unit (EIU) said in its report.

"Improvements in India’s business environment and progress in bilateral trade deals make it an increasingly viable investment destination," the EIU's Asia Outlook 2023 said. "Higher political risk in Southeast Asia will present India with an opportunity to capture more attention from global manufacturers," the report added.

India's moment comes amid political risk in Southeast Asia

Investors have focused on Southeast Asia a lot as they seek manufacturing alternatives to China - which is grappling with Covid and worker unrest in some places. China also has very strict lockdown restrictions, which force industries to shut shop when Covid-19 infections cross a threshhold, crippling supply chains globally.

The Association of South-East Asian Nations (ASEAN) have a free trade area and the bloc is central to many mega-regional free-trade agreements, which has helped smoothen supply-chain linkages. Transport and digital infrastructure are growing in the region too.

The report noted, "The region will remain attractive, but we believe it will lose some of its appeal in 2023 as political risk resurfaces. Thailand is due to hold an unpredictable general election by May, with splits within the ruling military-aligned political bloc giving opposition forces loyal to an exiled former Prime Minister, Thaksin Shinawatra, an opportunity to return. The political instability that has come to characterise Malaysia is set to persist, following the indecisive outcome of its November 2022 election. Indonesia will enter a more volatile period as campaigning begins ahead of the 2024 elections and the influence of the capable departing president, Joko Widodo, weakens."

It added, "The dominance in India of the ruling Bharatiya Janata Party carries its own political risks, but from an investors’ perspective it also offers policy continuity and means there is little chance of a change in administration. India has an obvious advantage in terms of a large and youthful labour market, while there has been incremental progress in addressing weaknesses."

Moreover, a lot has been done to address issues of transport infrastructure, taxes and trade regulation.

Ground developments show India as an attractive investment destination

Government support given under a production-linked incentive (PLI) scheme has helped accelerate investments in the electronics sector, something India struggled to cultivate earlier. The electronic exports rose by 50 per cent to $14 billion in 2021 and the value was matched within the first nine months of 2022.

Apple supplier Foxconn is considering a significant expansion in India as the Taiwan-based company is looking to diversify its manufacturing capacity beyond China.

"In 2023 India’s presidency of the G-20, as well as the probable conclusion of bilateral trade agreement negotiations with Australia and the UK, will further help to highlight investment opportunities in the country," the report says.

The World Bank, in its India Development Update said "India’s economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies," adding, "However, continued vigilance is required as adverse global developments persist."

India, Indonesia among bright spots in Asia in 2023, amid difficult economic conditions

The many years of strong export growth for Asia is expected to take a hit with the EU entering recession and the US economy forecast to slow down significantly. Domestic demand in Asia is also challenging as the interest rates in place to curb inflation in 2022 filter through local economies.

Rising interest rates pose a risk to markets with high household debt

Australia and South Korea stand out especially since household debt in both countries exceeds 100 per cent of the GDP, and much of that is tied up in local housing markets, the report states. Malaysia and Thailand also have high household debt and rates will rise in these middle-income economies, though slowly. Countries with low levels of household debt are better positioned to handle a tighter liquidity environment.

Advanced economies and emerging markets are both included in this, which is why India and Indonesia's consumer spending will be impacted by cost of living strains but not by forced household deleveraging, as per the report.