India remains an attractive destination for investments for multinational corporations, scoring highly for its skilled workforce and prospects for economic growth, a Deloitte global survey has found.
The survey — India’s FDI Opportunity — conducted during the peak of the second wave of the Covid-19 pandemic in India this year, found that a large proportion of international business leaders remain confident in India’s short- and long-term prospects and are readying plans to make additional and first-time investments in the country.
The global survey, which questioned 1,200 business leaders of multinational corporations in the US, UK, Japan and Singapore gauge their perceptions of India as a destination for foreign direct investment (FDI).
An accompanying Deloitte analysis shows that India will need $8 trillion of gross capital formation (new greenfield assets) to become a $5 trillion economy by FY2027. Based on past trends, India will need at least $400 billion, cumulatively, over six years, in FDI.
According to the survey, 44 per cent of MNCs across the US, UK, Japan, and Singapore said they were planning additional or first-time investments in India. Significantly, amongst first time investors, nearly two-thirds are planning investments in India within the next two years.
When the survey asked to identify sectors most likely to see new investments in India, utilities (energy infrastructure) led the way (57 per cent), while financial services (49 per cent) and healthcare (48 per cent) also ranked highly.
Although there is significant crossover, the survey found that more business leaders, especially in Japan, are making investments in India for access to the domestic market rather than using India as a springboard for exports.
India has the strongest positive perception in the US when compared to markets such as China, Brazil, Mexico, and Vietnam. Given the US and UK’s strong historic ties with India, the US and the UK business leaders expressed greater confidence in India’s stability. However, respondents from Japan and Singapore currently view Vietnam as their preferred investment destination.
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 i.e., 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.
Despite recent reforms to improve ease of doing business in India, awareness among investors remains low. Business leaders in Japan (16 per cent) and Singapore (9 per cent) were least aware of initiatives such as the digitisation of customs clearance and production linked incentives for manufacturers. Accordingly, India was perceived as a more challenging environment to do business compared to China and Vietnam. 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.
Commenting on the findings of the study, Punit Renjen, Deloitte Global CEO, said: “After the challenges of the past 18 months, the Deloitte survey is 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.”
India can target attracting greater FDI into seven capital-intensive sectors-Textile & Apparels, Food Processing Industry, Electronic Goods, Pharmaceuticals, Vehicles & Parts, Chemicals & API, and Capital Goods-that have contributed $181 billion of merchandise exports in FY 2020-21.
According to Deloitte research, India can target an additional $1 trillion of merchandise exports in the next five years by attracting higher FDI into capital investment-led focus sectors through schemes such as Product Linked Incentives (PLI).
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 proof of concept) to show quick results and set a global precedent. These sectors are potentially high employment generating sectors in cities outside Tier 1 (Tier 2 and 3 cities as well as in the rural areas) as well as for semi or low skilled workers.