Foreign direct investment (FDI) in India, which overtook China as the world’s most populous country last year, jumped more than 13-fold in 22 years, BusinessDay analysis of data shows.
India’s push for foreign investment offers lessons for Nigeria, Africa’s most populous country, which saw FDI inflows into its economy turn negative in 2022 for the first time in at least 33 years.
Last year, at least five multinationals announced plans to exit Africa’s biggest economy, a development that threatens its $1 trillion economy target by 2030.
President Bola Tinubu, who took the helm of Nigeria seven months ago, stoked foreign investors’ interest with some of his actions including the removal of petrol subsidy and the start of foreign exchange reforms.
As part of efforts to drive up investments in the country, he immediately hosted several major companies including Airtel, ExxonMobil, Shell Petroleum Development Company and Bank of America and travelled to countries like Germany, Saudi Arabia, India, South Korea and Dubai.
India, which is also a developing country like Nigeria, attracted FDI worth $49.4 billion in 2022, up from $3.59 billion in 2000, while inflows into Nigeria turn negative (-$187 million) as against N1.31 billion 22 years ago, according to United Nations Conference on Trade and Development.
“Facing a severe balance of payments crisis in 1991, the Indian economy liberalised with a slew of economic reforms aimed at reducing import tariffs and ‘opening up’ sectors to foreign investment,” analysts at Visual Capitalist said in a recent report.
They said FDI into the Asian country trended upwards, gathering steam at the start of the new century.
“In the midst of the subprime crisis and the global recession, investment to the country stayed resilient due to the country’s vast, and fairly insulated, domestic market.”
India ranked 40th on the 2023 Global Competitiveness Index 2023. The country also jumped by six places to 38th in the World Bank’s 2023 Logistics Performance. In terms of innovation, it ranks 40th.
Here is why India is an attractive investment destination
Favourable business policies and reforms
The government of India aims to achieve a Gross Domestic Product (GDP) of $5 trillion by 2025. To make this growth possible and to improve its business environment, the government introduced measures such as easing restrictions on FDI, streamlining the tax code and establishing an organisation specifically charged with facilitating foreign investments.
It has also implemented reforms like the Goods and Services Tax, the bankruptcy code and the liberalisation of foreign investment. Others are creating a common market, opening new sectors, privatisation and infrastructure development.
India’s startup programme is another policy that offers incentives and tax benefits to startups.
Large pool of tech, science and technical talent
India has the third-largest group of scientists and technicians in the world, according to All India Management Association and The Boston Consulting Group.
This has increased the involvement of tech giants such as Apple, Google and Samsung in the country’s manufacturing landscape. Samsung has established the world’s largest mobile phone manufacturing facility, Apple has been assembling iPhones, and Google plans to manufacture its flagship Pixel 8 smartphone in India.
Large youth population
India has its largest-ever adolescent and youth population, according to the United Nations Population Fund. The Fund projects that it will continue to have one of the youngest populations in the world till 2030.
This demographic dividend is an incentive for investors. By 2030, it is estimated that around 42 percent of India’s population would be urbanised from 31 percent in 2011.
Stable economic growth
India’s population grew by 7.2 percent to over 1.3 billion in 2022. It is one of the world’s fastest-growing economies, lifting about 415 million people out of poverty between 2005 to 2021.
Shri Narendra Modi, prime minister of India in May 2020, announced a special economic and comprehensive package of more than $270 billion – equivalent to 10 percent of India’s GDP, under the Atmanirbhar Bharat Abhiyan (Self-reliant India Campaign).
World’s second-lowest manufacturing costs
Last year, a BCG report ranked India second among countries with the lowest manufacturing costs.
“As many global companies reconfigure their manufacturing and sourcing strategies due to geopolitical uncertainty, India is emerging as a future export manufacturing powerhouse,” the report said.
It found that exports from India to the United States increased by $23 billion — a 44 percent rise from 2018 to 2022.
“For the past two decades, we have heard talk of India’s potential in manufacturing, often with a lingering question mark. Now, it seems that many of the pieces of the puzzle are falling into place.”
Government’s regulation of FDI
Forbes India said FDI in India is subject to regulation and oversight by various government bodies, such as the Department for Promotion of Industry and Internal Trade, which formulates and implements policies to promote and regulate foreign investment in India across sectors.
It said the Reserve Bank of India manages the monetary aspects of foreign investments in India. The Securities and Exchange Board of India regulates FDI in the capital market.
FDI Regulations
India offers an automatic route for FDI in several sectors, simplifying the investment process for foreign investors in India.
However, certain sectors require government approval, and FDI caps and conditions vary from one industry to another, according to Forbes India.
“Strict reporting requirements, in line with the Foreign Exchange Management Act, are in place to ensure transparency in foreign investments in India.”
FDI routes in India
There are two FDI routes in India designed to safeguard the country’s security and national interests, according to Forbes India.
“The government employs these routes as a means to promote foreign investment in India in particular sectors, and these FDI routes in India also empower foreign investors in India to choose the pathway that aligns with their business objectives and ensures compliance with India’s regulations,” it said.
It added that the automatic route allows foreign investors in India to invest in sectors without requiring prior approval from Indian authorities. “Under this route, investors are only required to notify the Reserve Bank of India within a specified time frame.
“This route is designed to promote ease of doing business and attract foreign capital, making it particularly attractive for sectors open to higher FDI limits or do not have specific security concerns.”
