Despite the fact that every nation's growth story has been harmed by the global Covid-19 outbreak, rising inflation, and the ongoing turmoil in Ukraine, India has been able to successfully manage the economic setbacks thanks to fiscal support. India's economic activity is currently picking up steam, amid certain obstacles. While the RBI maintains India's growth rate at seven percent for 2022–2033, the World Bank projects global growth to be 4.1 percent and India's growth to be 6.5 percent in 2022. According to the State Bank of India, India has surpassed the UK as the world's fifth-largest economy and is expected to pass it by 2027 and 2029, respectively, assuming its present growth rate continues.
For investors, the consumption trend can be tapped through traditional consumer companies that are integrating digital capabilities as well as cutting-edge Indian IT enterprises. The reason for this is that both domestic and foreign investors can invest in India in a growing and thriving environment. Furthermore, evidence backs up these findings which says that India has the potential to draw $475 billion in FDI flows over the next five years, according to a CII-EY analysis.
However, why does India seem to be a desirable location for investors despite the geopolitical issues, unemployment, increased inflation, and depreciation of the rupee that it is experiencing?
Fastest Growing Economies
India's economy is one of the world's fastest growing, which is the first reason. India is a popular location for international investments due to its ongoing, extensive economic changes, talented labor, and large customer base.
Second, from the January-March quarter of the fiscal year 2020–21, India's nominal GDP has been growing by double digits at a time when the rate of global economic growth is likely to be lower than previously anticipated. The current fiscal's April to June quarter saw GDP rise above pre-Covid levels. The economy is on a growth path, according to the first quarter's figures. If its GDP growth in dollar terms continues at the current rate, India's economy is predicted to reach $5 trillion in the 2020s.
Finally, it is anticipated that India's population will increase from 121 crore to 152 crore. The nation has a sizable and growing middle class that is eager to spend money. This offers a significant market opportunity for a variety of goods and services across industrial sectors. It is a major attraction for foreign investors seeking to expand into mature international markets.
Fourth, India offers a steady supply of inexpensive skilled and semi-skilled labor. Labor is more readily available for less cost, which reduces manufacturing costs and boosts competitiveness. Throughout time, it will be a significant factor in the expansion of the economy.
What Investments Can do to this Growing Economy
The country has already seen up to 108 new foreign project finance deals, compared to an average of 20 projects over the previous ten years, according to the UNCTAD's Global Investment Report-2022. A new automobile manufacturing facility will cost $2.4 billion, while a steel and cement complex will cost $13.5 billion to build.
The growth of the Indian economy depends heavily on foreign investors. To make conducting business easier and draw in foreign investors, the government is attempting to reduce compliance concerns. On this line, the Insolvency and Bankruptcy Code (IBC) was introduced. Regarding the business environment's ongoing progress, India moved up to the 40th position in the global innovation index, moving from 142 in 2014 to 63 in 2020, according to the ease of doing business ranking.
A big achievement is inviting international investment into the manufacturing sector. It was an essential component of the nation's effective economic strategy as it moved closer to achieving its next objective of being the third-largest economy in the world. Throughout the past few years, the primary driver of growth in global project finance has been investment in renewable energy. In a similar way, India has obtained funding for 23 overseas renewable energy projects.
Moreover, the government has made a few changes to the labor rules to make it easier for businesses to operate. India has started the National Single-window System, which will serve as a one-stop shop for investors, business owners, and Business Inc. to obtain the approvals and permissions they need.
To promote FDI, the government is also developing an investor-friendly policy. The nation is enabling automatic foreign participation in the telecommunications sector at 100 percent. Government clearance is not required for investments made by non-resident investors or Indian businesses.
But Some Hiccups Need to be Quenched
Today, most reports focus on several tax-related cases. The application of capital gains taxes in the cases of Vodafone vs India and Cairn vs India are two well-known instances that were on the verge of collapse. With regard to Vodafone, India's retroactive demand for capital gains and withholding tax damaged its standing as a nation with a strong legal system.
To restore the tarnished reputation, the government passed new legislation in 2021. It renounced all of these requests and issued a Rs. 8,100 crore return. Similar to that, in 2022, the government will reimburse Cairn Energy Rs 7,900 crore it had seized. In order to regain investor trust, a stable and predictable tax system was implemented.
Investment Continues to Pour
India has become a popular spot for global investment throughout the years. The enabling environment and an open, transparent policy system, in addition to the economy's consistent GDP growth, which has increased market opportunities in India, have greatly aided in the country's emergence as a top destination. The FDI policy regime in India functions in a dynamic environment and has been continually reviewed in accordance with requirements and investors' perceptions. To support FDI in more industries via the automatic route, the FDI policy is gradually liberalizing on a continuing basis as part of this process.
For the majority of activities in 2000, the government permitted FDI up to 100 percent using the automatic route, while a tiny negative list was announced where either the automatic route was unavailable or FDI was subject to restrictions. Since then, more sectors have been made available for foreign investment, and the policy has been steadily streamlined and rationalized.