While opening a global investment summit in Rajasthan this week, Prime Minister Narendra Modi said India was thriving as an investment destination on the back of democracy, demography, digital data and delivery. One might have taken the four Ds with a pinch of caution, except data released the same day by the department for promotion of industry and trade supported the claim.
Foreign direct equity investment increased 45 per cent in the first 6 months of the current fiscal, going up to nearly USD 30 billion in the first half-year compared to USD 20.5 billion in the April-September period last year. What is significant is the turnaround after a contraction of inflows for three consecutive financial years since 2021-22. Significantly, the ‘new economy’ attracted most investments—services, banking and insurance, followed by computer software and hardware.
That this is not a flash in the pan was established by cumulative data. FDI inflows since April 2000—including equity, reinvested earnings and other capital—have crossed USD 1 trillion, firmly establishing India among the world’s top investment destinations. Unofficial data, too, corroborates that the nation is on a rebound. A survey of 107 global investors by investment firm Coller Capital revealed nearly two-thirds of the respondents saw India ahead in the Asia-Pacific region on the risk-reward balance, followed by Japan and South Korea. India’s advantage, these respondents felt, was its exit opportunities and the liquidity it offered at an early stage, compared to other markets.
FDI flows are important as they boost growth in crucial sectors like infrastructure and technology, adding jobs and generating wealth. Healthy inflows help maintain a respectable balance of payments and support the rupee’s value, which has taken a beating of late. It is therefore necessary for the government to continue monitoring the FDI policy closely and tweaking it where necessary to ensure a friendly and flexible business environment.
This is not an easy task, as the global investment scenario can undergo a sea change within days. For instance, the flagging Chinese economy did a quick turnaround recently with a slew of policy stimuli that sucked capital out from other competing markets including India. On the other hand, US president-elect Donald Trump threatening to create tall tariff barriers against Chinese exports could create a window of opportunity as investors look for better-placed alternatives.