India’s journey from a developing economy to a global investment hub is a story of remarkable transformation. Over the years, the country has shifted its focus from simply achieving growth to becoming a preferred destination for international investors. With reforms in key sectors, improved infrastructure, and a growing emphasis on digital and technological advancements, India has positioned itself as an attractive market. Foreign investors are drawn to India’s large consumer base, skilled workforce, and government initiatives like Make in India, which aim to boost manufacturing and innovation. This evolution reflects India’s ambition to be a major player on the global economic stage.
Tags: GS – 3, Economy- growth and development- Mobilization of Resources- Capital Market
Context:
- India’s shift from an economically constrained nation to a global investment hotspot is largely due to the Make in India initiative, which has boosted job creation, economic growth, and empowered MSMEs to produce quality goods.
- India’s appeal to global investors is enhanced by its “four Ds”: decisive leadership, demand from a large population, demographic dividend, and vibrant democracy.
How India is Becoming an Increasingly Attractive Investment Destination:
- Robust Economic Growth:
- India has become one of the fastest-growing economies, with total FDI inflows of USD 990.97 billion from April 2000 to March 2024.
- The IMF forecasts a GDP growth of 6.7% in FY24, bolstered by the Atmanirbhar Bharat Abhiyan, which includes a USD 270 billion economic stimulus package.
- Demographic Dividend:
- India has the world’s largest youth population, projected to grow from 121.1 crore in 2011 to 152.2 crore by 2036.
- This tech-savvy workforce, with internet users expected to reach 900 million by 2025, creates opportunities in e-commerce and digital services.
- Infrastructure Development:
- The National Infrastructure Pipeline (NIP) aims to create world-class infrastructure and boost the economy to a USD 5 trillion target by FY 2025.
- Over 9,700 projects worth USD 3,093.51 billion span critical sectors like Energy (24%) and Roads (18%), with a recent INR 6,000 crore equity infusion into the NIIF.
- Improving Ease of Doing Business:
- Reforms have improved India’s World Bank Ease of Doing Business Index ranking from 142 in 2014 to 63 in 2019.
- Notable reforms include eliminating over 25,000 compliance requirements and digitising processes, with the GIS-based India Industrial Land Bank (IILB) facilitating business operations.
- Large and Growing Consumer Base:
- India, representing 17.78% of the global population, has a rising middle class expected to grow from 432 million in 2020-21 to 715 million by 2030-31, driving increased consumer spending.
- Strategic Geopolitical Position:
- counterbalance to China in the Indo-Pacific, enhances its attractiveness to investors.
- Participation in strategic groupings like the Quad and initiatives like the Supply Chain Resilience Initiative further boosts its global standing.
- Booming Start-up Ecosystem:
- India’s start-up ecosystem is the third-largest globally, with 111 unicorns valued at $349.67 billion as of October 2023.
- The Startup India initiative has facilitated growth through funding and regulatory support, attracting USD 24 billion in equity funding for start-ups in 2022.
- Renewable Energy Push:
- India aims for 500 GW of renewable energy capacity by 2030, up from about 170 GW in early 2023.
- This ambition drives investments in solar, wind, and green hydrogen projects, positioning India as a leader in the clean energy transition.
- Digital Infrastructure and Fintech Revolution:
- The India Stack has transformed financial inclusion, with the Unified Payments Interface (UPI) processing 3729.1 transactions per second in 2023.
- The fintech market is expected to reach USD 150 billion by 2025, attracting global investment in innovative solutions.
Challenges:
- Infrastructure Gaps:
- In 2023, India ranked 38 out of 139 in the World Bank’s Logistics Performance Index (LPI), with deficits in power distribution, water supply, and last-mile connectivity.
- Regulatory Complexity and Policy Uncertainty:
- Retrospective tax disputes with Vodafone and Cairn Energy, resolved only in 2021 after lengthy litigation, and frequent changes in e-commerce and data localization rules creating uncertainty for tech companies.
- Labor Market Rigidities:
- The implementation of India’s new labour codes from 2019 and 2020 is still pending.
- Over 90% of the workforce is in the unorganised sector, and a skills mismatch exists
- 80% of Indian engineers lack the necessary skills for the knowledge economy, and only 2.5% have the required tech skills in Artificial Intelligence (AI).
- Banking Sector Challenges:
- According to the RBI’s June 2024 report, NPAs remain at 2.8% (Gross NPA). The near-collapse of Yes Bank in 2020 raised concerns about the financial system’s stability.
- Land Acquisition Challenges:
- The Right to Fair Compensation and Transparency in Land Acquisition Act of 2013, while safeguarding landowners’ rights, complicates and lengthens the process.
- For instance, the Mumbai-Ahmedabad High-Speed Rail project faced delays due to land acquisition issues.
- Intellectual Property Rights (IPR) Concerns:
- India ranked 42nd out of 55 countries in the U.S. Chamber of Commerce’s 2023 International IP Index.
- Issues like Section 3(d) of the Patents Act, which sets a high bar for pharmaceutical patents, and a counterfeit goods market estimated at ₹2.6 trillion in 2022.
- Digital Infrastructure and Cybersecurity:
- The Indian Computer Emergency Response Team (Cert-In) reported handling 1,391,457 cybersecurity incidents in 2022, raising concerns about data protection and investor confidence.
Steps India Can Take to Enhance Its Appeal as an Investment Destination:
- Accelerate Infrastructure Development: India’s logistics costs (14% of GDP) are higher than in developed countries (8-10%). Initiatives like the PM Gati Shakti National Master Plan should be fast-tracked to potentially save billions annually and enhance export competitiveness.
- Labor Law Reforms and Skill Development: Focusing on programs like the Pradhan Mantri Kaushal Vikas Yojana. Scale collaborations with industries, such as the Google-NASSCOM partnership for training developers in cloud technologies.
- Strengthen the Banking Sector: Implement recommendations from the RBI’s Internal Working Group on ownership guidelines for private sector banks to attract more investment.
- Land Reforms and Digitization: Completing the digitization under the Digital India Land Records Modernization Programme could reduce land disputes by 50% and significantly cut project implementation times.
- Strengthen Intellectual Property Rights Protection: Reduce patent application processing time to 14-15 months (from 18 months) and increase the number of patent examiners while modernising IP offices.
- Boost Digital Infrastructure and Cybersecurity: To provide high-speed internet access to all villages under the BharatNet project. Focus on increasing average fixed broadband speeds and implement the National Cyber Security Strategy to reduce cybersecurity incidents by 50%.
- Promote Sustainable Development: Over USD 100 billion in green investments by 2030 and positioning India as a leader in sustainable manufacturing.
- Enhance Education and Skill Development: The National Education Policy 2020 with an emphasis on digital skills and practical training. Scale up successful training models like the Indian Institutes of Skills to bridge the skill gap.
UPSC Civil Services Examination, Previous Year Questions (PYQ)
Prelims
Q:1 Which one of the following groups of items is included in India’s foreign-exchange reserves? (2013)
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDRs
(c) Foreign-currency assets, loans from the World Bank and SDRs
(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank.
Ans: (b)
Q:2 With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? (2020)
(a) It is the investment through capital instruments essentially in a listed company.
(b) It is a largely non-debt creating capital flow.
(c) It is an investment which involves debt-servicing.
(d) It is the investment made by foreign institutional investors in the Government securities.
Ans: (b)
Mains:
Q:1 Justify the need for FDI for the development of the Indian economy. Why is there a gap between MoUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (2016)
Q2 Foreign Direct Investment in the defence sector is now set to be liberalised. What influence is this expected to have on Indian defence and economy in the short and long run? (2014)
Source: HT
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