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.
India has attracted foreign direct investment at record levels even during the COVID-19 pandemic with total FDI inflows amounting to $81.72 billion in 2020/21, 10% higher than the previous financial year.
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.
The survey conducted at the peak of the second wave of the pandemic showed 44% of the respondents across the United States, UK, Japan, and Singapore said they were planning additional or first-time investments in India. Amongst new investors, nearly two-thirds are planning investments in India within the next two years, it showed.
Utilities, particularly energy infrastructure, got 57% votes in terms of sectors that will see new investments while financial services at 49% and healthcare at 48% were other highly ranked sectors.
India’s Prime Minister Narendra Modi in 2019 had said his country aimed to be a $5 trillion economy by 2024. India’s GDP is currently less than $3 trillion. Deloitte in an analysis accompanying the report said India will need $8 trillion of gross capital formation or new greenfield assets to become a $5 trillion economy by 2026/27.
“Based on past trends, India will need at least $400 billion, cumulatively, over six years, in FDI,” it added.
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, the survey showed. Inadequate infrastructure was another negative factor cited by existing and potential investors.
Deloitte Global CEO Punit Renjen said: “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 USD 5 trillion economy.
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 digitization of customs clearance and production-linked incentive (PLI Scheme) for manufacturers, it said.