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
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
- 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.
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
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.
