A large proportion of international business leaders remain confident in India’s short and long-term prospects and are planning to make additional and first-time investments in the country, according to a global survey published by Deloitte India.

Deloitte on Tuesday published a global survey of multinational business leaders titled “India’s FDI Opportunity” to gauge their perceptions of India as a destination for foreign direct investment (FDI).

The survey was conducted during the peak of the second wave of the Covid-19 pandemic in India and questioned 1,200 business leaders of multinational corporations in the United States, United Kingdom, Japan and Singapore.

As per the report, India remains an attractive destination for investments, scoring high on its skilled workforce and prospects for economic growth. Forty four per cent of those surveyed across the US, the UK, Japan, and Singapore said they were planning additional or first-time investments in India.

Furthermore nearly two-thirds of first time investors said that they are planning investments in India within the next two years.

As per an accompanying Deloitte analysis, India will need $8 trillion of gross capital formation (new greenfield assets) to become a $5 trillion economy by FY2027. Based on past trends, India will need at least $400 billion, cumulatively, over six years, in FDI.

Key trends

Utilities (energy infrastructure) topped the list of sectors most likely to see new investments in India (57 per cent). Financial services (49 percent) and healthcare (48 per cent) also ranked highly.

“Although there is significant crossover, more business leaders, especially in Japan, are making investments in India for access to the domestic market rather than using India as a springboard for exports,” the report said.

Furthermore, the perception of India is the strongest in the US and the UK when compared to markets such as China, Brazil, Mexico, and Vietnam.

“Given the US and the UK’s strong historic ties with India, business leaders there expressed greater confidence in India’s stability. However, respondents from Japan and Singapore currently view Vietnam as their preferred investment destination,” the report added.

India scored higher on its economic growth and skilled workforce among foreign investors.

As per the report, “while India is perceived as both politically and economically stable, it scored lower on institutional stability i.e., regulatory clarity and efficient judicial redress and mechanisms.”

Another negative for India, as cited by existing and potential investors, was inadequate infrastructure.

As per the report, the government’s recent decision to rectify the long-running retrospective taxation issue with an amendment in the tax law was a significant boost for investor confidence.

However, as per the survey, awareness regarding the reforms to improve ease of doing business in the country remains low.

Business leaders in Japan (16 per cent) and Singapore (9 per cent) were least aware of initiatives such as the digitisation of customs clearance and production linked incentives for manufacturers.

Accordingly, India was perceived as a more challenging environment to do business compared to China and Vietnam. Around 75 per cent of business leaders said that they were more willing to invest in India after being made aware of existing government programmes, incentives and reforms.

Punit Renjen, Deloitte Global CEO, said, “After the challenges of the past 18 months, the Deloitte survey is a positive validation of the underlying strengths of the Indian economy, in particular its appeal for foreign investors.”

“We believe the outlook can only get better because of India’s improving ease of business, which includes fiscal benefits and other reforms. These positive steps further convince me that India is moving towards its ambition of becoming a $5 trillion economy,” added Renjen.

The plan ahead

Moving forward, India can target attracting greater FDI into seven capital-intensive sectors, as per the report. These are textiles and apparels, food processing industry, electronic goods, pharmaceuticals, vehicles and parts, chemicals and API, and capital goods that have contributed $181 billion of merchandise exports in FY21.

According to the Deloitte research, India can target an additional $1 trillion of merchandise exports in the next five years by attracting higher FDI into capital investment-led focus sectors through schemes such as Product Linked Incentives (PLI).

“These seven sectors have the necessary potential (meaningful size and growth of exports), opportunity (large MNCs seeking alternative manufacturing hubs), and capability (adequate existing investments as proofs of concept) to show quick results and set a global precedent,” the report said.

“These sectors are potentially high employment generating sectors in cities outside Tier 1 (Tier 2 and 3 cities as well as in the rural areas) as well as for semi or low-skilled workers,” it added.

comment COMMENT NOW