To reach its ambitions of becoming a U.S.$5 trillion economy, India needs to avail sizeable FDI inflows into capital-intensive sectors, says the recently-published research firm Deloitte's report analysing India's FDI constraints and opportunites. The researchers believe this would add to the country's gross capital fromation and becomes imperative especially because of the country's declining domestic savings. "To reach the target sooner, India will have to direct a larger proportion of foreign investment into capital formation, such as green-field projects", the report states.
Competition with China
Having said that, the researchers still believe that India would continue to be a magnet for foreign investment primarily because of its growing domestic market and skilled labour force. Deloitte also admits that perception tends to be an issue primarily because of lack of awareness about the Central Government's intiatives aimed at promoting the ease of business. ""
India's biggest rival in the realm continue to be China despite its perception taking a beating, last year.
The COVID-19 Impact on savings and demand
The report states that savings rate in India has declined since the pandemic erupted. Revival of the economy has the potental to accelerate consumer spending and drain the savings further. Investment would then accelerate to facilitate recovery of demand after an extended period of stagnant growth. "As a result of these dynamics, we expect domestic savings to fall short of meeting investment requirements, the report adds.
Need of the hour
"The creation of high-yielding assets and greater capital productivity will spur India’s long-term GDP growth", the report states. FDI provides financial capital, intellectual capital, access to international management, skills and technology. To spurt up its ambitions of the $5 trillion economy, FDI is a neccessity. Utilities (independent power and renewable energy related services), financial services and healthcare are most likely to become potential avenues of foreign investments. Information Technology, Communications and Real Estate are the least likely avenues.