India has set ambitious targets of achieving $100 billion in annual foreign direct investment (FDI) in the coming years, according to statements by its Information Technology Minister, Ashwini Vaishnaw.
The minister outlined a comprehensive strategy for this economic growth, anticipating a consistent 6-8% growth rate over the next decade. This strategy focuses on four key engines: substantial investments in both physical and digital infrastructure, uplifting the socio-economic strata at the bottom of the population pyramid, fostering manufacturing growth, and streamlining business processes to enhance the ease of doing business.
Speaking at the World Economic Forum in Davos, Vaishnaw emphasized that India’s growth trajectory is grounded in a well-thought-out approach. Despite concerns about protectionist policies, India has been a magnet for foreign investment, with major companies such as Apple, Samsung, Kia, and Airbus expanding their operations in the country since Prime Minister Narendra Modi assumed power in 2014.
Foreign direct investment in India reached $33 billion in the first half of the current financial year (starting April 2023), and it recorded a total of $71 billion in the previous financial year (2022-23). The nation anticipates robust economic growth of 7.3% in the current financial year, surpassing other major global economies. However, the challenge of addressing unemployment, particularly among the youth, remains a focal point in the upcoming elections.
Minister Vaishnaw likened the $100 billion target to the sustained inflows that China attracted over more than a decade, underscoring that investors now view India as the “most important investment destination.” As part of India’s drive to become a manufacturing powerhouse, Vaishnaw revealed ongoing efforts to collaborate with Apple, aiming to enhance the company’s manufacturing and retail presence in the country. Currently, India is estimated to contribute approximately 12-14% to global iPhone shipments.
Singapore, Japan, and US lead FDI flows
The equity foreign direct investment (FDI) into India declined sharply to $13.9 billion in April-July 2023 from $22.04 billion a year ago. Approximately two-thirds of foreign direct investment (FDI) equity inflows were channelled into sectors such as manufacturing, financial services, business services, computer services, electricity, and other energy sectors. The major contributors to these FDI flows were Singapore, Japan, the Netherlands, the United States, and Mauritius, accounting for over two-thirds of the total FDI equity during this period, as per a report by the Reserve Bank of India (RBI). High-frequency indicators indicate a potential slowdown in global economic activity during the third quarter of the calendar year 2023, with diverging trends across different regions. The global economic outlook is further complicated by structural shifts, introducing unusual uncertainty.
There is growing concern about a potential deceleration in global growth in 2024, following a period of exceeding expectations in 2023. This concern is heightened by the anticipation of inflation persisting above target levels, which may necessitate central banks to maintain disinflationary measures well into 2024. This scenario is seen as having a negative base effect on economic performance.