Destination India: inspiring investors

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India is an economy moving through the gears. While growth slowed in recent years, hope is now riding high on its new government to achieve an economic recovery and reinstate its strong position as a country of choice for global investors, says EY India Country Managing Partner, Rajiv Memani.

The headline results of our India Attractiveness Survey 2014, an annual study analyzing Foreign Direct Investment (FDI), are broadly positive, offering Indian policy-makers some important reassurance that ours is an economy poised to renew its journey of rapid growth.

Now is no time for complacency and this means that India needs to do more to promote our many strengths, as well as work upon weaknesses.

Facts and figures

According to the United Nations Conference on Trade and Development (UNCTAD), India received US$28b in FDI inflows in 2013, an increase of 17% on 2012, despite some unexpected capital outflows. Global FDI registered an 11% increase in the same period. India ranked 16th out of the top 20 host economies for FDI in 2013.

But there is also the recognition that more can done. Reflecting this, Indian policy-makers have passed a number of FDI reforms in the last two years, designed to boost foreign investment and generate employment. Broadly, the reforms work toward two main objectives:

  • Developing an automatic investment route (without prior government approval)
  • Increasing FDI limits

Finding the winning edge

India needs to do more to promote our many strengths, as well as work upon all weaknesses. Of strengths, there are many to report:

  • India is set to benefit from a demographic dividend. The labor force in India currently stands at 498.7 million and is expected to rise to 556.8 million by 2020, according to UNCTAD estimates.
  • India is forecast to become one of the largest consumer markets in the world by 2025, with consumer spending likely to rise from US$900b today to US$3.6t by 2020, according to a report by the Confederation of Indian Industry.
  • India can boast of the availability of an educated workforce backed by a strong education system.

Such strengths will clearly help draw in more investors, but it would be remiss not to highlight some of our weaknesses too:

  • Insufficient transport and logistics infrastructure
  • Power shortages
  • Corruption
  • Complex fiscal and legal obligations

Fulfilling the potential

While a growing middle class and rising per capita income levels will boost domestic consumption and help drive economic growth, a few additional measures would lead to further improvement:

  • Improving the effectiveness of the rule of law and reducing corruption
  • Upgrading administrative procedures and increasing accountability and transparency
  • Adopting global best practices for infrastructure development, focusing on optimizing cost and energy efficiency
  • Improving productivity
  • Reforming complex labor laws, and simplifying and consolidating distinct pieces of legislation into a comprehensive code
  • Facilitating access to capital
  • Simplifying the procedure for paying taxes, and progressing to a growth-oriented tax system

These proposals — balanced, achievable and realistic — would collectively help move our country forward at an even faster rate of progress.