India likely to cross $100 billion FDI in FY23
For a long time, India was the poor cousin of China in terms of FDI flows. India used to get billions of dollars in hot money or FPI flows. However, it was China that used to get the cream of the FDI flows, most of it from expatriate Chinese living abroad and investing in China. In contrast, Indian NRIs were happy with bank deposits in India for attractive interest rates. That is not the case any longer. In the last 10 years, India has been setting FDI records and touched $83.5 billion FDI in FY22. Now in FY23, India hopes to cross $100 billion FDI. If that happens, it could be a feather cap on the business friendly environment created.
Growing from $83,5 billion to $100 billion should not be very difficult except for the fact that the world is going through a macro challenge of rising inflation, higher interest rates and falling growth. However, it is said that every crisis provides an opportunity just that. In the past, companies looking to produce high technology products would make a beeline for China, Taiwan or even Vietnam. Not any longer. India is on the bucket list of most big business houses and the likes of Apple and Samsung are leading charge in making India their preferred destination for manufacturing. Doing business in India is getting easier.
What exactly would FDI flows of $100 billion really mean for India at a broader scale. Of course, US and China may still be on top of the table in terms of FDI flows, but India is gradually getting there. India was ranked in terms of FDI flows in the year 2021 and at $100 billion it should scale up to the top-5 in terms of FDI flows. It is surely an indication that India is starting to demonstrate its manufacturing and technology prowess and the developed markets have now started believing that India can do it. Tesla may still be wary of India but once the basic issues are ironed out, they should be in sooner rather than later.
India today has potential for FDI in a number of sectors. For instance, pharmaceuticals is where India showed its manufacturing muscle by producing tens of millions of vaccine doses during the COVID pandemic. In the auto space, India is building major new global electric vehicle hubs. In chemicals, the only country that can match up to China in APIs is India. India is already the second largest manufacturer of mobile phones in the world. All these sectors now have the support of the production linked incentives (PLI) scheme which is a hug incentive for the manufacturers and is likely to encourage companies to invest in India.
Infrastructure has been improving and global companies also acknowledge that the cost of weak infrastructure in India is sharply reducing. India is already in the midst of sinking $1.4 trillion into infrastructure and that should make a world of difference to Indian infrastructure. Not to forge that India is not just a capable producer but also offers a huge market with a digitally savvy population. India is a massive consumer market and has the appetite for most of the high end consumer products that are produced globally. That would be a major advantage for manufacturers looking at India as a viable option.
Behind this surge in FDI, a number of big changes have happened, which may not be apparent. For instance, India saw more than 15,000% increase in the number of start-ups in the last 6 years. On the other hand, more than 22,000 compliances have been removed as part of the effort to encourage ease of doing business. These two elements are interconnected and also encourage and boost each other. It is an example of the animal spirits of capitalism being awakened and the Indian business ecosystem being made more investor friendly and business conducive. All that has helped in a big way.
It has not missed attention that India has some of the best policy incentives in place to create a global electric vehicle hub and is one of the handful of countries on track to meet its climate change goals. Of late, it is not just the metros that is getting FDI, but even smaller places are able to attract FDI to a large extent. Touching $100 billion in FDI (assuming it happens in FY23) will not just be a number, but a statement to the world that Indian business has arrived.
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