India aims to attract at least $100 billion a year in gross foreign direct investment (FD) as many investors, multinational companies are looking to diversify away from China, Rajesh Kumar Singh, secretary in the Department for Promotion of Industry and Internal Trade, said.
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The target is way up from the annual average of more than $70 billion in FDI in the last five years through March 2023. Last year, India saw a dip in its FDI due to global uncertainties and other factors. But despite the hurdles, Singh said that the figure for the current fiscal year will be “closer to” the $100 billion target.
“Our target is that we will average at least $100 billion over the next five years. The trend is very positive and upward,” Singh told Bloomberg in a recent interview.
India, which is the world’s fastest-growing major economy, has been trying to woo businesses that want to hedge against geopolitical tensions by spreading their operations more broadly. This has been termed as the “China plus one” strategy.
Companies like Apple Inc. and Samsung Electronics Co. have boosted manufacturing in India, taking advantage of incentives offered by Prime Minister Narendra Modi’s government.
As per OECD’s latest data, India’s share of global FDI inflows fell from 3.5 per cent in the first nine months of 2022 to 2.19 per cent in the same period in 2023. The sharp drop of 54 per cent is much steeper than the overall global FDI inflow decline of 26 per cent in the first nine months.
FDI inflows to China have fallen dramatically from a share of 12.5 per cent in the first nine months of 2022 to only 1.7 per cent in the same period in 2023. It is not India but countries like the US, Canada, Mexico, Brazil, Poland, and Germany that gained the most from China’s loss by seeing their global share rise.
A report by Kotak Institutional Equities noted that India is yet to land a substantial surge in FDI despite its strategies and policies.
The report noted that “the weakness [in FDI inflows] is quite broad-based across sectors, with certain services-oriented sectors witnessing a sharp moderation in 9MFY24.”
Sectors such as electricity, electronics and IT and communication continue to attract strong investment interest globally, although investments seem to be trailing announcements in recent years.
In comparison, software-services, BFSI and trading companies are receiving the highest FDI inflows domestically.
For India, Kotak noted:”India has taken significant positive steps in the past five years through various reforms and incentive measures, but it is yet to see a meaningful increase in investments over this period.”
“We remain hopeful that investments in certain sunrise sectors will accelerate in the coming years”, added the report.
Kotak also said that India should realign its focus towards the domestic market, while increasing its presence in higher value-added goods for exports, as “it may be difficult for India to penetrate established value chains, where India is at a significant disadvantage”.
