Know why foreign investors will continue investing in India

The Narendra Modi government has been for some time now tom-toming about India’s return to growth and the return of the adverbial ‘achhe din’, however, more often than not, there have been far too few statistics pointing to the validation of these claims. What Narendra Modi can probably take heart from is the recent Foreign direct investment (FDI) inflow data which shows a doubling at $4.48 bn in January 2015 vis-à-vis the inflow in the same month a year ago. But the big question that is on everyone’s minds is if this momentum will continue. Will Modi, given the slew of announcements made during the budget as well as the reformatory legislative decisions being taken during the current parliament session, be able to build on the ‘feel good’ factor he has created?

Experts and analysts from across the board seem to believe so. Analysts expect this momentum to continue, on the back of the several policy initiatives announced to boost investor sentiment in the economy.

It should be noted that the government has a sharp focus on pushing up India’s place in the Ease of Doing Business list by the World Bank.
According to Rohit Gadia, CEO of CapitalVia, the proposal to club both FDI and FPI will have a great impact on the foreign investments directly as it will give a clarity and reduce the ambiguity. He explained that the current norms where there were separate caps for FDI and FPIs, limited the investment exposure and sometimes restricted the investment opportunities.

In terms of the sectors, analysts expect manufacturing and infrastructure to benefit the most as Prime Minister Narendra Modi has an ambitious dream of developing India as a manufacturing hub. Besides, the government’s intention to restructure the Public Private Partnership (PPP) model is also expected to boost FDI in critical sectors, especially infrastructure.

“Re-balancing the PPP models and asking the government to take risks would motivate the private sector in infrastructure and some of the announcements like prior clearances for ultra mega projects would improve ease of doing business,” said Rana Kapoor, president of industry body ASSOCHAM.

Apart from these sectors, analysts expected service, auto, biotechnology and eCommerce to also attract foreign investments. However, traditional retail is not expected to attract any foreign investments. Aviation too will not see much investment as the taxation structure and the high prices of jet fuel adds hugely to the cost of operations.

It should be noted that official data highlighted that the primary source of FDI in the current fiscal year include Cyprus, Japan, Singapore, Mauritius, Germany, France, Switzerland and UK. “In the insurance sector, we can expect Japanese companies to invest here,” said Yashish Dahiya, co-founder of Policy Bazaar.