By Dezan Shira
India’s inward investment rule went through a series of changes since economic reforms were escorted in two decades back. The expectation of the policy-makers was that an “investor friendly” command will help India establish itself as a preferred destination of foreign investors. These expectations remained largely unfulfilled despite the consistent attempts by the policy makers to increase the attractiveness of India by further changes in policies that included opening up of individual sectors, raising the hitherto existing caps on foreign holding and improving investment procedures. But after 2005‐06, official statistics started reporting steep increases in FDI inflows. Portfolio investors and round-tripping investments have been important contributors to India’s reported FDI inflows thus blurring the distinction between direct and portfolio investors on one hand and foreign and domestic investors on the other. These investors were also the ones which have exploited the tax haven route most.
Inward investments have been constantly rising since the sharp drop witnessed in 2009, following the global financial crisis. Hiccups apart, foreign investors see huge long-term growth potential in the country. As much as 75 percent of global businesses already present in the country are looking to considerably expand their operations going forward according to the Indian attractive survey by Ernst & Young. This also confirms that India is undergoing a changeover, both in terms of investor perception of its market potential, and in reality.
With GDP growth anticipated to surpass 8 percent yearly and the number of people in the Indian middle class set to triple over the next 15 years, with an equivalent impact on disposable income, domestic demand is expected to grow exponentially. India’s young demographic profile also helps it in providing an increasingly well-educated and cost-competitive labor force. These factors put India in a good position to attract an increasing proportion of global FDI.
About the Author
You can read the rest of this story about foreign direct investment in India at the India investment news site, India-Briefing.com.
For more information about fdi in India, contact Dezan Shira & Associates.
