The global investment climate is now experiencing factors that are influencing investment flows. As economies recover from the pandemic, contemporary geopolitical antagonism has created concern among investors. These problems force organisations to reassess the global business landscape and potential fault lines.
Against this turbulent backdrop, it is comforting to observe that global investors continue to view India as a reliable partner and an appealing investment location. The latest CII-EY MNC Survey 2022 assess the form, as well as the amount of interest that MNC decision-makers have in India. Simultaneously, the report focuses on the variables that are attracting investors and the way forward to continue this momentum.
Trends Driving Indian FDI Story
According to the CII-EY MNC Report, India has the potential to attract $475 billion in Foreign Direct Investment (FDI) over the next five years. Apart from the fact that India is one of the world’s fastest growing big economies (OECD). Optimism in India’s potential originates from strong consumer patterns, digitalization, and a burgeoning services sector, as well as the government’s strong emphasis on infrastructure and manufacturing.
Let us look at the key drivers of Indian FDI story:
Fast Paced Growth
India has recently emerged as the world’s fifth biggest economy, and with its rapid economic development, it is expected to rise to become the fourth largest economy, surpassing Germany in 2025, and the third largest in 2027, surpassing Japan.
Determined Policy Reforms
The direction of India’s growth is being determined by the strong momentum in domestic consumption, services,digital economy, and infrastructure. India’s thrust on structuring modern Free Trade Agreements (FTAs) to boost trade and create cross-border investment opportunities also finds favour with international businesses and investors.
Large and Growing Consumption Base
The large domestic consumption base and rapid growth are expected to lead to real growth in consumption spendingof about US$ 1.7 trillion during the period of 2019-2030. This would be the third highest growth in demand acrosseconomies. The share of health, education and other services has increased in the total basket of consumption, spelling new investment opportunities.
Demographic Advantage and Rising Share of Services Sector
Robust demand, increasing investments and higher exports have made the services sector a significant contributor to India’s GDP growth. Notably, the services sector’s share in Gross Value Added (GVA) is expected to grow from 55.3% in 2019-20 to 63.8% in 2030-31. It is, therefore, not surprising that an increasing number of people work in the services sector, an essential factor in a country like India where the working age population is expected to peak in 2033 at 68.5%.
Consistent Focus on the Manufacturing Sector
As India’s flagship programme “Make in India’’ completes eight years this year, various reforms undertaken by thegovernment to make India competitive have begun showing results sending a strong signal to the world about India as a manufacturing hub.
The Great Digital Drive
The value of India’s digital economy is expected to reach US$ 1 trillion by 2025 on the basis of digital transformationand technology-led growth, which also presents attractive investment opportunities for MNCs. Increase in the number of smartphone users, internet users and real-time payment transactions is expanding digitization in India and leading to the emergence of new consumption patterns. The growth in e-commerce has positive implications for MNCs.
The Infrastructure Push
The large infrastructure spends comprising overall infrastructure pipeline of US$ 1.3 trillion in 5 years, public capexincrease from 1.6% of GDP in 2018-19 to 2.9% in 2022-23, the National Monetization Pipeline (NMP) with aggregatemonetisation potential of INR 6.0 lakh crore through sale of core assets of the Central Government and Gati Shaktioffer immense potential for investments by private sector as well.
India’s Geo-Political Stability and Constructive Engagement with The World
At a time when the world is going through turbulent geopolitical and economic period, India offers a relative stabilitycompared to other emerging market economies across a range of parameters including macroeconomic stability and robustness to geopolitical shocks. India’s political stability and relentless economic policy reforms add to theattractiveness.
Building with sustainability
India’s sustainability targets present opportunities for sustainability-linked investments for MNCs, especially in thethree segments of renewable energy, real estate and transport. India has seen US$ 18 billion capital flows in globalgreen bond issuances. In addition, India’s Green Hydrogen Mission will make the country a hub for the production and export of green hydrogen, where the demand is projected to be 15-20 MT by 2030.
The Path Ahead
Going forward, government focus on implementing the infrastructure projects and project preparation timelines, especially for Public-Private Partnership (PPP projects) will be critical. Development of competitive business clustersand continuation of financial sector and power sector reforms would be important, in addition to continuing the path to NetZero and achieving India’s environmental, social and governance (ESG) targets.