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India Major Destination for Investments; Must Attract FDI to Become $5 Trillion Economy by FY27: Deloitte

    15 September , 2021         Fdiindia

India Major Destination for Investments; Must Attract FDI to Become $5 Trillion Economy by FY27: Deloitte

Foreign direct investment (FDI) flowed into India at unprecedented levels even during the epidemic, according to a Deloitte study titled "India's FDI potential via an investor's perspective."

According to a Deloitte study of 1,200 business executives from global companies in the United States, the United Kingdom, Japan, and Singapore, India remains an attractive investment location. According to the study, the nation received excellent marks for its trained workforce and economic development potential.

Textiles and clothing, food processing, electronics, pharmaceuticals, cars and parts, chemicals, and capital goods are seven capital-intensive industries that India may target to attract more FDI, according to the study. In 2020-21, these industries generated $181 billion in goods exports.

According to the study, these seven industries have the capacity, opportunity, and competence to produce rapid results and establish a worldwide precedent. According to the report, rather than utilising India as a springboard for exports, more business executives, particularly in Japan, are investing in India to get access to the local market.

In comparison to China, Brazil, Mexico, and Vietnam, India has the most favourable reputation in the United States, according to the study. "Business executives in the United States and the United Kingdom indicated increased trust in India's stability," it said.

FDI inflows totaled a record $81.72 billion in FY21, up 10% from the previous financial year. This includes stock, re-invested profits, and capital. The Indian information and communication technology and construction industries, according to the United Nations Conference on Trade and Development (UNCTAD), were major beneficiaries of FDI. In the previous year, it became India the world's fifth-largest beneficiary.

However, according to the study, the record FDI has not contributed proportionally to India's capital creation and GDP. "While foreign investment inflows into India have risen steadily over the last five years, they have not contributed proportionally to the country's capital creation or GDP."

According to the report, just a small portion of overall foreign capital inflows are used to create new assets in India. "Net capital inflows accounted for approximately 4% of total gross capital creation during the past five years, implying that domestic investments, financed by domestic savings, accounted for the remaining 96%."

According to the study, despite recent changes aimed at improving the ease of doing business in India, investor awareness remains low. Business leaders in Japan (16%) and Singapore (9%) were the least aware of efforts like digitised customs clearance and production-related incentives for manufacturers.

As a result, India was regarded as having a more difficult business climate than China and Vietnam, according to the report. India also received lower marks for regulatory clarity and effective judicial redress and procedures, according to the report.

Inadequate infrastructure was also identified as a negative issue by current and prospective investors, according to the report. According to the study, India needs to attract FDI in capital-intensive industries that contribute to the country's gross capital formation in order to develop to a $5 trillion GDP by FY27.

According to the study, India's competitive edge, which includes a big and expanding domestic market and a trained technical workforce, makes it an unrivalled magnet for investors. According to the report, start-ups would become more crucial in India's quest to become a $5 trillion economy.

"The government must showcase to the world India's dazzling potential as an attractive manufacturing destination, while also aspiring for a greater share of global investments and trade flows," it added.