India – Investment Destination - How can India step up its game?

Economic crises are not recent, we have seen many different depressions. Their history goes back to mid-1637 when the ‘Tulip and Bulb Craze’ took place, then it was followed by the ‘South Sea Bubble’ crisis in the 1700s, the Florida Real Estate Craze. The more recent ones of the Great Depression (1929), the Crash of 1987, the Asian Crisis (1997), the Dotcom Crash (2001), and the Global Financial Crisis (2007) and the current on-going crises of COVID-19. But the repercussions of this current ongoing crisis are stronger which resulted in complete or partial shutdown of socio-economic activities across the world, threatening both lives and livelihoods. In a scenario where the economic crisis is not market induced, it is imperative to recalibrate the way countries do business.

Today we all speak about the new normal, where the crisis has presented a growing need to diversify the economic activities, divide the shock, and look beyond one nation for their business needs. India has emerged as a favoured destination for the world because of its attractive market, skilled workforce and policy reforms.

Commerce and Industry Minister Piyush Goyal has called upon American businesses to look at India as their next investment destination.
 

“The bilateral trade between US & India grew from $126 billion dollars in 2017 to $145 dollars in 2019. The target we have set of $500 billion dollars in the next 5 years is eminently doable,” he said while addressing India Chamber of Commerce USA's Summit on Global Financial and Investment Leadership last October, 2020.

It has been seen that there is a favourable investment climate for India. It could be seen in the record FDI in April-August 2020. The total inflow of FDI in the first five months of FY21 was USD 35.73 billion which is 13% higher as compared to the first five months of 2019-20. FDI equity inflow received during the same period was USD 27.10 billion which is 16% more compared to the first five months of the previous financial year. 

To make India as the next investment destination, our government has been looking into the reforms. In the country such as corporate tax cuts, Ease of Doing Business measures, simplification of labour laws, FDI reforms, and focus on human capital have emerged as the top drivers for fresh investments among Indian and Non-Indian HQ companies.

Fastest growing economy

• With the International Monetary Fund (IMF) predicting that India is likely to retain the status till 2020. With the Gross Domestic Product (GDP) of the country growing at more than 7% since 2014, the IMF has kept projections for India’s growth in 2018-2019 at 7.6%
• According to the World Bank, India is also the third-largest economy in the world regarding its purchasing power parity with the GDP of over USD 3.2 trillion
• India is the fastest growing large economy in the world today, impressively overtaking China in 2015
• It was named amongst the top 19 Foreign Direct Investment (FDI) destination in 2019
• In recent years, India has emerged as one of the most attractive destinations not only for investments but also for Doing Business, jumping by 50 places in Ease of Doing Business rankings between 2017 and 2019 (Source: Ease of Doing Business, World Bank)
• Foreign exchange reserves have been at a comfortable level over recent years. Currently, India’s reserves stand at USD 481.540 billion (Source: Reserve Bank of India as on 28th Feb, 2020).

Demographic advantage

• India is expected to have the share of youth in total population at around 32.3% in 2030. The share reached its maximum in the year 2010
• The proportion of working age population in India is likely to reach more than 64% by 2021, with a large number of young people in the 20-35 age group (Source: Economic Survey 2019)
• If India continues its recent growth trend, average household incomes will triple over the next two decades and it will become the world’s fifth largest consumer economy by the year 2025 (Source: The Bird of Gold, McKinsey Report)
• India is expected to be the largest supplier of university graduates in the world by 2020 (Source: Morgan Stanley Research)

Favourable policies

• Major FDI policy reforms have been made in a number of sectors, such as Defense, Construction Development, Pensions, Broadcasting, Pharmaceutical and Civil Aviation
• Foreign investors can invest in India either on their own or as a joint venture, as may be required in a few sectors
• Barring a few reserved sectors, 100 percent FDI is allowed through the automatic route in several fields, without the need of Government approval, namely Automobile, Food Processing, Construction, etc
• In the Union budget 2016-17, the Government has emphasized the need to increase manufacturing as a percentage of GDP
• The Central and State Governments have sector specific policies, incentives and subsidies to promote manufacturing
• Increased allocation in the budget to improve infrastructure, which is critical in facilitating future growth

Today we see India amongst the top three growing economies and leading manufacturing destinations of the world. With market opening up coupled with policy measures, India is on the path of recovery, and in the post-COVID world, it is destined to be the hub for economic activities.