India is an attractive investment destination for developed economies as 44% of 1,200 global business leaders based in the US, UK, Japan, and Singapore plan to make additional or first-time investments in the country, but more business leaders, especially in Japan, find India lucrative for its domestic market rather than as a hub for exports, according to a survey by consulting firm Deloitte Touche Tohmatsu India LLP.
Despite economic disruption due to the Covid-19 pandemic, inflow of foreign direct investment (FDI) in India amounted to a record $81.72 billion, 10% higher than the previous fiscal year, and this trend would continue, it said in the report, ‘India’s FDI opportunity’.
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India has the strongest positive perception in the US when compared to markets such as China, Brazil, Mexico, and Vietnam. “Given US and UK’s strong historic ties with India, US and UK business leaders expressed greater confidence in India’s stability. However, respondents from Japan and Singapore currently view Vietnam as their preferred investment destination,” the report said.
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“Significantly, among first time investors [44% of 1,200 respondents], nearly two-thirds are planning investments in India within the next two years,” it said. A 57% of them find energy infrastructure most likely to see new investments, reflecting India’s plans to significantly grow its renewables capacity, followed by financial services (49%) and healthcare (48%) sectors, according to the survey.
Business leaders rated India higher on economic growth and skilled workforce. While India is perceived as both politically and economically stable, it scored lower on institutional stability -- regulatory clarity and efficient judicial redress and mechanisms.
“Inadequate infrastructure was another negative factor cited by existing and potential investors. The survey predated the government’s recent decision to rectify the long-running retrospective taxation issue with an amendment in the tax law, a significant boost for investor confidence,” it said.
The survey revealed that the government needs to publicise policy reforms. “Despite recent reforms to improve ease of doing business in India, awareness among investors remains low. Business leaders in Japan (16%) and Singapore (9%) were least aware of initiatives such as the digitisation of customs clearance and production-linked incentives [PLI] for manufacturers, it said.
India was perceived as a more challenging environment to do business compared to China and Vietnam, it said. “Roughly 75 per cent of business leaders said they were more willing to invest in India after being made aware of existing government programmes, incentives and reforms,” the report said.
Deloitte Global CEO Punit Renjen said that after the challenges of the past 18 months due to Covid-19 pandemic, the survey was a positive validation of the underlying strengths of the Indian economy, in particular its appeal for foreign investors. “We believe the outlook can only get better because of India’s improving ease of business, which includes fiscal benefits and other reforms. These positive steps further convince me that India is moving towards its ambition of a US$5 trillion economy,” he said.
According to the report, India can target attracting greater FDI into seven capital-intensive sectors -- textile & apparels, food processing industry, electronic goods, pharmaceuticals, vehicles & parts, chemicals & active pharmaceutical ingredients, and capital goods -- that have contributed $181 billion of merchandise exports in 2020-21. “Such investments will help improve the export growth of these sectors by six times to $1,075 billion by FY2026-27,” the Deloitte research said.
These seven sectors have the necessary potential (meaningful size and growth of exports), opportunity (large MNCs seeking alternative manufacturing hubs), and capability (adequate existing investments as proofs of concept) to show quick results and set a global precedent, it said.
As an expert in international business and investment trends, I can confidently analyze the key concepts discussed in the article about India's attractiveness as an investment destination, based on my in-depth knowledge of the global economic landscape.
The article highlights that India is emerging as an appealing investment destination for developed economies, with 44% of 1,200 global business leaders from the US, UK, Japan, and Singapore planning additional or first-time investments in the country. Despite the economic disruption caused by the Covid-19 pandemic, India witnessed a record inflow of foreign direct investment (FDI) amounting to $81.72 billion, a 10% increase from the previous fiscal year.
The positive perception of India is particularly strong in the US, where it outshines markets like China, Brazil, Mexico, and Vietnam. This positive sentiment is attributed to the historical ties between the US and UK with India, fostering greater confidence in India's stability among business leaders from these countries.
However, the article points out that Japanese and Singaporean business leaders currently view Vietnam as their preferred investment destination. This distinction underscores the diverse preferences and considerations among global investors.
The survey indicates that among first-time investors, nearly two-thirds are planning investments in India within the next two years. The energy infrastructure sector is identified as the most likely to attract new investments, reflecting India's ambitious plans to expand its renewable energy capacity. Other sectors that are expected to draw significant investments include financial services and healthcare.
While India is perceived as both politically and economically stable, the article highlights concerns about institutional stability, specifically regulatory clarity and efficient judicial redress mechanisms. Inadequate infrastructure is identified as a negative factor, though recent government decisions, such as rectifying the retrospective taxation issue, are seen as significant boosts for investor confidence.
The article emphasizes the need for the government to publicize policy reforms, as awareness among investors, particularly in Japan and Singapore, remains low. Despite recent reforms to improve the ease of doing business, India is perceived as a more challenging environment compared to China and Vietnam. However, the report suggests that 75% of business leaders express greater willingness to invest in India after becoming aware of existing government programs, incentives, and reforms.
Deloitte Global CEO Punit Renjen expresses optimism about the Indian economy's underlying strengths, citing improvements in ease of business, fiscal benefits, and other reforms. The report suggests that India can target greater FDI in seven capital-intensive sectors, including textiles, food processing, electronics, pharmaceuticals, vehicles, chemicals, and capital goods. These sectors have the potential, opportunity, and capability to significantly boost export growth, contributing to India's goal of becoming a $5 trillion economy.
In summary, the article provides a comprehensive overview of the current investment landscape in India, highlighting both positive and challenging aspects, and underscores the importance of effective policy communication and ongoing reforms to enhance the country's appeal to global investors.
