Despite a dreaded pandemic, investor interest in India continues to soar. In the latest foreign direct investment (FDI) data released by the Ministry of Commerce, India received a record $81.72 billion of investment during the financial year 2020-21 compared to $74.39 billion in 2019-20.
Not just that, FDI equity inflow rose in the same period by 19% to $59.64 billion from $49.98 billion. It was also a year when ‘computer hardware and software’ as a category soared ahead of the usual list topper ‘services’; in fact, ‘services’ was bumped off to third position by ‘construction (infrastructure) activities’.
No doubt as the economy swings into action after the pandemic, services shall grow exponentially again, but there is a bigger story in these numbers that is worth telling.
In these pages, I have earlier written about the process of deep digitisation that is currently happening in the country. This means that in almost every aspect of public life, and at every touchpoint between governance and the citizen, or the market and the citizen, digital technology is becoming the connector, the interface, the glue. From the investments raised by Reliance Industries for its digital ventures, to the ever-increasing numbers of unicorns (or start-ups that have a valuation of more than a billion dollars)—earlier, in April, in a span of just four days, six start-ups acquired unicorn status—the giant digital transactions landscape, the burgeoning SaaS (software-as-a-service) business, and other initiatives including direct transfers of government funds using digital technology, this is increasingly one of the most attractive investment reasons to look at India.
To make this more attractive, the government has introduced benefits through the Production Linked Incentive (PLI) schemes in electronics and removed the archaic information technology-enabled services and the BPO (business process outsourcing) industry.
But this is only one part of the story. Consider why the interest is growing in construction and infrastructure. India is looking to spend $1.4 trillion in the coming years in building infrastructure, including roadways whose pace have been hitting the record books. Among the latest plans are to build a series of green highway corridors, in some places with the World Bank as partner. From inland waterways to highways, tunnels and roads in the remotest parts of the country, including the high Himalayas and the most distant corners of the Northeast, the action in infrastructure has been relentless despite the pandemic. Interesting innovations are also unfolding in infrastructure like the testing of the use of plastic waste in road construction.
Writing soon after the Budget announcement, I had described it as Narendra Modi’s New Deal, based on the familiar combination of relief, recovery and reform. The coming of the second wave of the coronavirus has shown us the importance of relief as a key ingredient of economic resilience and recovery. And the impetus for reform is more striking than perhaps ever. There is little doubt that the world to come would be divided into pre-Covid and after-Covid. And after-Covid is a whole new world.
This is the opportunity that investors are banking on—think of it as a double barrel of infrastructure push, on one side is digital infrastructure designed to change the contours of societal interaction at every level, and on the other the unrolling of new physical infrastructure is bridging the last-mile disconnect. From banking for the unbanked to farm produce for the palate conscious, there is little that these two engines cannot deliver.
These twin influences add up to a fundamental societal change that is likely to create a whole new generation of consumers, buyers, users who would propel future demand, and profits.
The history of FDI, in my mind, can be divided into two parts. The first happened after liberalisation in 1991, and really took off at the turn of the millennium. This is the phase where there were areas that were literally being discovered by investors, and there was a certain novelty and braggadocio in that age. With the arrival of Prime Minister Narendra Modi’s government in 2014, we are in the second phase of our FDI history. This is a far more mature phase, and investors are noticing the depth of the India story, the longevity, rather than just the opportunity.
As the world starts to accept that living with waves of Covid is perhaps going to be a regular feature of our collective future, the search for longevity of opportunity is likely to lead to India quite frequently.
Hindol Sengupta
Vice President & Head of Research at Invest India, GoI’s national investment promotion agency
(hindol.opinion@gmail.com)