FDI inflows into India have surpassed the USD 1 trillion mark from April 2000 to September 2024, solidifying the country’s position as a safe and significant global investment destination. According to DPIIT, the cumulative FDI inflows, which include equity inflows, reinvested earnings, and other capital, reached USD 1,033.4 billion during this period.
Economic survey highlights RBI and the IMF projection that India’s consumer price inflation will progressively align towards the inflation target in FY26. In the December 2024 RBI’s Monetary Policy Committee report revised its inflation projection from 4.5 per cent to 4.8 per cent in FY25. Assuming a normal monsoon and no further external or policy shocks, the RBI expects headline inflation to be 4.2 per cent in FY26. IMF has projected an inflation rate of 4.4 per cent in FY25 and 4.1 per cent in FY26 for India. India faces a persistent deficit in the production of pulses and oilseeds, along with frequent fluctuations in tomato and onion production, leading to price pressures. To address this, focused research is needed to develop climate-resilient crop varieties, enhancing yield and reducing crop damage. Efforts to expand the area under pulses in rice-fallow regions are likely to help. India has carried out a series of structural reforms in the last decade. From the Goods and Services Tax (GST), to the Insolvency and Bankruptcy Code (IBC), which established a framework for dealing with corporate renewal, to the RERA (Real Estate Regulation Act), which helped clean up the real estate sector and rapid roll-out of digital infrastructure – the India Stack (UID, UPI, DBT).
In 1980, global trade accounted for about 39 per cent of world GDP. By 2012, this share had risen to 60 per cent, reflecting the deep integration of global markets. Global FDI inflows grew from USD 54 billion in 1980 to over USD 1.5 trillion in 2019, showcasing the increasing role of multinational corporations in cross-border investments. The global economy grew from USD 11 trillion in 1980 to over USD 100 trillion in 2022. Extreme poverty rates (those living on less than USD 2.15 a day) fell from 42 per cent of the global population in 1981 to 8.4 per cent in 2019. Survey emphasises that realisation of economic aspirations of becoming Viksit Bharat by the time of the centenary of independence, India needs to achieve a growth rate of around 8 per cent at constant prices, on average, for about a decade or two. While the desirability of this growth rate is unquestionable, it’s important to recognise that the global environment – political and economic – will influence India’s growth outcomes.
Most sectors in the country are open for foreign investors under the automatic route. The large amount of repatriations, as witnessed in the data, also suggests that it is easy to transfer the returns on investment made in India. However, there is room to improve tax certainty and tax stability in matters such as APA (Advance Pricing Agreement). India has simplified many of its laws, rules and regulations over the years leading to a regime shift in terms of the ease of doing business compared to yester years. At the same time, all statutory and regulatory authorities must bear in mind that international investors benchmark countries cross-sectionally and not longitudinally. That will determine the success of the government’s goal to make global companies produce in India for the world, making India a part of the global supply chain.
If the investment rate cannot be increased because of capital constraints, then investment efficiency has to go up. Deregulation and ‘Ease of Doing Business’ will play an important role in driving India’s growth. Therein lies the clue to improving India’s investment efficiency as the path to further industrialisation is paved with deregulation, R&D and, innovation and improving the skill levels of the workforce. Commitment to R&D is imperative and is required even if does not entail Government led fiscal incentive, as it is about global competitiveness and profitability. Deregulation will lead the growth by reducing compliance burdens and simplifying and digitising processes. States have tried to reduce the cost of regulations by engaging with businesses to identify pain points.
There is a positive correlation between the ease of doing business in states and the level of industrial activity, suggesting the need for deregulation and enterprise-friendly reforms in aspiring and emerging states. However, current regulations act as binding constraints on growth by increasing the cost of market entry, force-fitting inefficient models for operations, and prolonging industrial sickness. Regulations hurt businesses’ ability to start and grow over time.
Economic survey recommends creating an enabling policy and regulatory environment for the upgradation of capacity and know-how of component manufacturers, increasing the availability of trained human resources, addressing resource bottlenecks and regulatory impediments to accelerate India’s gross fixed capital formation, strategy for growth and expansion of India’s MSME Sector and helping it to expand via deregulation and policy actions at the level of states and local governments; undertaking reforms that help remove the growth impediments in the agriculture sector; a strategy to leverage the rapidly growing pool of global green capital from sovereign wealth funds, global pensions, private equity, and infrastructure funds for securing green transition finance.
Galactik Views