Editorial

India should make the most of the conducive global environment to attract foreign investment

| Updated on November 06, 2020 Published on November 06, 2020

Providing tax incentives to foreign investors to invest in areas that need funding such as infrastructure appears to be working in attracting investments such as the ones from the Abu Dhabi sovereign wealth fund

Prime Minister Narendra Modi’s meeting with the heads of global funds on Thursday to woo foreign investments was aptly timed. With the finances of the government strained due to the decline in tax revenues and increase in pandemic-related spends, it is logical to invite global funds to bridge the gap in public infrastructure and other capital expenditure. The strong foreign portfolio as well as FDI flows into the country are an offshoot of the stimulus unrolled by global central banks to fight the pandemic. The outcome of the US Presidential election may not yet be certain but the liquidity conditions in global markets are unlikely to be affected, irrespective of who moves into the Oval Office next. With global growth likely to be tepid until 2022, it may not be easy to commence monetary tightening anytime soon, and further rounds of stimulus may also be required in the coming months.

India’s equity market has witnessed net foreign portfolio inflows of more than ₹95,000 crore so far in FY21. This surge of money comes after a tepid ₹6,153 crore of net inflow in FY20 and net outflow of ₹88 crore in FY19. It is clear that the resurgence in the Federal Reserve’s liquidity boosting measures has had a large part to play in the strong FPI inflows this year; empirical data show that flows into India have a strong linkage with Fed’s actions. The new US President will have to continue the current policies for some more time at least until employment revives and businesses move back to the pre-Covid growth rates. It is notable that foreign portfolio investors have preferred to invest in equities of only India and China in FY20, even as they have withdrawn money out of most other emerging markets. It is clear that these investors still believe in the demographic superiority of India and its long-term growth prospects. FDI flows so far this year are 56 per cent higher compared to the same period last year.

The Modi government had begun its first term by wooing foreign investments to fund capital expenditure and the strategy is being repeated now. The massive investments attracted by Reliance Industries for its telecom and retail arms show that global investors are willing to put their money in India if the policies are right and the projects promising. Providing tax incentives to foreign investors to invest in areas that need funding such as infrastructure appears to be working in attracting investments such as the ones from the Abu Dhabi sovereign wealth fund. The Centre, however, needs to get more serious about improving ease of doing business and avoiding policy flip-flops, if these flows have to sustain.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on November 06, 2020
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.