Hong Kong: RBI chief Raghuram Rajan said Asia's third-largest economy is being hampered by a drop in public and private investments, but held out hope that strong foreign capital flows will help rectify this weakness.
Weak capital investment has been a hurdle in India's quest to realise its growth potential and with factories running 30 per cent below capacity, private companies are in no rush to invest in new projects.
"On the growth front, the central concern is with investments," said Rajan, who was speaking at a business event in Hong Kong on Friday. "Private investment has fallen back quite a bit and so has public investment."
The RBI has cut its growth forecast for the current fiscal year to 7.4 per cent from 7.6 per cent previously, well below the government's target of 8 to 8.5 per cent, but still faster than China.
Despite the slowdown in growth and investments, Rajan said strong foreign direct investment and some traction in infrastructure development may encourage private investments.
During the period from January to June, foreign direct investment (FDI) flows into India rose to $19.4 billion, up 30 per cent from a year earlier, a sign of what the government called investors' growing confidence in the country.
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