India is an attractive FDI destination: Deloitte survey
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’.
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.