FDI in Indian economy

Factors driving FDI in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Factors driving FDI in India

The article explains the four factors that explain the FDI inflows in India.

India’s economic decade

  • Almost every major global company is either contemplating or operating on the assumption that India is a key part of their growth story.
  • Google, Facebook, Walmart, Samsung, Foxconn, and Silver Lake have been just a handful of the firms that made huge investments in Inda.
  • As a result, India saw the fastest growth in Foreign Direct Investment (FDI) inflows among all the major economies last year.
  • Meanwhile, India’s latest FDI totals still lags behind the highest tallies in other markets such as China and Brazil.

Issues faced by investors and factors driving investment

  • Frequent shifts in the policy landscape and persistent market access barriers are standard complaints levied against India by the business community.
  • The government’s push to build a “self-reliant” India has also rattled skittish investors and smaller companies that lack the resources to navigate on-the-ground hurdles.
  • Still, investors recognise that doing business in India — or any emerging market  — comes with inherent risks but that adaptation in approach is critical to success.
  • Four core dynamics drive this calculus and explain why multinational companies are making India an essential part of their growth story.

4 Factors driving FDI in India

1) India’s population

  • What India offers through its nearly 1.4 billion people and their growing purchasing power is uniquely valuable for multinationals with global ambitions.
  • No other country outside of China has a market that houses nearly one in six people on the planet and a rising middle class of 600 million.

2) Shifting geopolitics

  •  Rising U.S.-China competition is forcing multinationals to rethink their footprints and production hubs.
  • Savvy countries such as Vietnam have capitalised on this opportunity to great effect, but India is finally getting serious about attracting large-scale production and exports.

3) Digital connectivity

  • Cheap mobile data have powered a revolution across India’s digital economy and connected an estimated 700 million Indians to the Internet.
  • More than 500 million Indians still remain offline, this is a key reason why leading global tech companies are investing in India and weathering acute policy pressure.
  • Domestic Indian companies have also demonstrated their ability to innovate and deliver high quality services at scale.
  • The partnerships and FDI flows linking multinationals and Indian tech firms will continue to unlock shared market opportunities for years to come.

4) National resilience

  • Despite facing the scourge of the novel coronavirus head on, India has managed the pandemic better than many of its western peers and restored economic activity even before implementing a mass vaccination programme.
  • These are remarkable developments, and yet they speak to India’s underlying resilience even in the face of historic challenges.

Shared value creation

  • Unlocking opportunities in the Indian market cannot take the form of a one-way wealth transfer.
  • Companies need to demonstrate their commitment to India.
  • Successful companies do this by placing shared value creation at the heart of their business strategy.
  • They tie corporate success to India’s growth and development.
  • They forge enduring partnerships and lasting relationships, elevate and invest in Indian talent, align products with Indian tastes, and ultimately tackle the hardest problems facing India today.

Consider the question “Despite the issues faced by the investors, India witnessed the fastest growth in the FDI inflows among all the major economies amid pandemic. In light of this, examine the factors driving the FDI in India.”

Conclusion

For leading companies with global ambitions and a willingness to make big bets, the rewards of investing in the Indian market are substantial and well worth pursuing.

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