India, a leading growing economy in South Asia, has been one of the fastest-growing countries over the past decade in terms of gross domestic product (GDP) growth and macroeconomic management. According to the IMF World Economic Outlook (April 2016), India's GDP growth in 2015 was 7.336 per cent and India is the ninth fastest growing nation in the world.

In 2014, India was the 14th fastest growing nation in the world with a GDP growth of 7.244 per cent. Its average growth from 1980 to 2014 stood at 6.27 per cent, reaching an all time high of 10.26 per cent in 2010 and a record low of 1.06 per cent in 1991.

High inflation, a widening fiscal deficit with a decline in domestic saving and interest rates are the concerns of the Narendra Modi government. The immediate priority is to bring down inflation levels and find an alternative source of funding for mammoth projects in infrastructure and development.

Islamic banking and finance
Islamic banking and finance has been one of the fastest growing industries in the last decade, with assets worth trillions of dollars under its management. Today, more than 500 Islamic banks and financial institutions are operating in and outside the Muslim world.

The global Islamic finance industry has been on an upward trajectory, evidenced by a compound annual growth rate of 17 per cent for its assets between 2009 and 2013. The industry's assets were estimated to be worth $1.87 trillion in 2014 from $1.79 trillion in 2013.

An estimated $1.5 trillion in capital moves around the Middle East, largely from oil prices. Many Middle Eastern investors are eager to capitalise on India's growth story. Regulatory challenges and the government's unfocused approach to Islamic finance is working against India's potential to become a favoured investment destination.

The country's 12th five-year plan for 2012-2017 targets on removing some of these roadblocks and creating a framework for private sector participation, but it will rely on the ability of India's leaders to execute these plans. In its draft 12th five-year plan, the government proposes to invest $1 trillion to upgrade infrastructure - almost double that of the earlier plan.

Islamic bonds
Islamic bonds (sukuk) have successfully financed long-term projects globally. Sukuks are seen as an alternative source of finance to account for the Indian economic deficit.

Sukuks are certificates that represent a proportional common ownership right in tangible assets, or a pool of assets that are Shariah-compliant. The success of sukuk is not limited to Muslim countries alone, many counties where Muslims are in minority are also testing these innovative financial instruments. Singapore introduced new regulations to suit the Islamic banking system by waiving stamp duties for real estate financing and a five per cent concessionary tax rate for Islamic financing.

Similarly, the UK plans to start issuing sukuk to attract more funds and raise capital. Moreover, the UK, Ireland, Germany, France, Canada and Australia have introduced new regulations to facilitate the growth of this financial system.

India offers a lot of potential for these alternate investments and needs to amend regulations to allow Shariah-based investing to enable growth.

As an initial step, it is essential to develop proper legislation as well as supporting infrastructure, including the necessary skill sets. Future areas of research include measuring better Islamic banking development and assessing the impact of Islamic banking on inequality and social development.
Investments can be allowed on a pilot basis in the form of sukuk in India.

Sukuk financing is set to continue providing Indian issuers with non-bank alternatives to longer-term funding. Sukuks have confirmed their viability as an alternative means to mobilise medium- to long-term savings and investments from a huge investor base. Sukuk also plays a significant role in India to help issuers and investors to participate in major projects associated with infrastructure such as airports, bridges and power-generating facilities.

The writer is a UAE-based financial consultant. Views expressed are his own and do not reflect the newspaper's policy.