4 minute read 26 Nov 2020
FDI in India Now, Next and Beyond

FDI in India – Now, Next and Beyond: Reforms and opportunities

By Sudhir Kapadia

EY India National Leader - Tax

Expert on taxation and its impact on the economy. Senior advisor on private equity, financial services, technology and entertainment. Passionate about travelling, swimming and watching movies.

4 minute read 26 Nov 2020
Related topics Tax

India has the potential to attract annual FDI between $120 billion and $160 billion by 2025: CII-EY Report on FDI in India – Now, Next and Beyond. 

According to the CII-EY survey on “FDI in India – Now, Next and Beyond, Reforms and opportunities India can expect to attract US$120 billion to US$160 billion of FDI annually by 2025 if it manages to increase the FDI to GDP ratio between 3% to 4% range by 2025. This can aid in bringing back India’s GDP growth rate to 7%-8% range. The above growth will be stimulated by the recent structural reforms, raising of the FDI limits in multiple sectors and the Atmanirbhar Bharat strategy of the Government of India.  

The report, based on a CII-EY Survey to gauge the market sentiment amongst the Indian as well as non-Indian companies, notes that India has emerged as one of the top three choices for overseas investments in the next 2-3 years.  About 50% of respondents see India amongst the top three economies or leading manufacturing destinations of the world by 2025. The respondents have pinned down market potential, skilled workforce, and political stability as the top three reasons to make India their favoured destination.

 

India is the only large developing country which is a viable alternative for investors looking to diversify their supply chains.

Now: India’s reforms focus has resulted in consistent rise in FDI
  • As per the OECD FDI restrictiveness index, India’s FDI restriction levels have come down from 0.42 to 0.21 in the last 16 years
  • Four Indian states— Maharashtra (28%), Karnataka (19%), Delhi (16%) and Gujarat (10%) — attracted around 3/4th of the FDI inflows in the country (from October 2019 to June 2020), highlighting areas of opportunity going forward for the rest of the Indian states
  • Only 11% of total FDI in the last 19 years was in low skill manufacturing, highlighting the potential for India to attract large FDI in low-skilled manufacturing
India’s reforms focus has resulted in consistent rise in FDI
Next: Multiple investment opportunities for foreign investors to create vibrant value chains
  • The survey reveals that approx. 80% of the respondents are planning investment globally in the next 2-3 years. India is among the top three attractive destinations for them in terms of capacity expansion, digital transformation and research and development
India’s reforms focus has resulted in consistent rise in FDI
  • 42% attributed recent government reforms lowering of corporate tax rates, streamlining the labour codes made India a preferred investment destination. This is closely followed by ease of doing business measures.
Significant of recent reforms by the Indian government in attracting FDI
Beyond: Further reforms will strengthen India’s competitiveness

Reforms that can strengthen India’s competitiveness:

  • Focus on setting up Coastal Economic Zones/manufacturing clusters
  • Continue improving ease of doing business
  • Continue financial sector reforms
  • Incentivize R&D and innovation, bring certainty in taxation
  • Continue planned spend on National Infrastructure Pipeline by the Centre
  • Power sector reforms important to improve manufacturing competitiveness
  • Focus on Environment, Social and Governance sectors 
Significant of recent reforms by the Indian government in attracting FDI

Summary

The COVID-19 pandemic has led to a reset in the economic strategy of many countries across the world. India too is going through such a phase, and FDI will play a significant role in this economic strategy as an important source of non-debt finance for economic development.

About this article

By Sudhir Kapadia

EY India National Leader - Tax

Expert on taxation and its impact on the economy. Senior advisor on private equity, financial services, technology and entertainment. Passionate about travelling, swimming and watching movies.

Related topics Tax