Financing India: FDI is increasing, but India needs a great deal more

India needs investment — while the focus is more likely towards foreign investments, there is a need to encourage domestic investments as well. Any form of investment is important for the country that is aspiring to become a USD 5 trillion economy in the coming few years.

A discussion was held under the ‘Financing India’ webinar series, where various investment-friendly policies and COVID-19-influenced investments patterns were highlighted.

The session titled ‘Financing India-How to galvanize investments into India’ was organised by The Free Press Journal and SIES in association with Invest India recently. The panellists for the session (in alphabetic order) were Vivek Sonny Abraham, Vice President, Invest India; Sai Sudha Chandrasekaran, Senior AVP, Invest India; and Madan Sabnavis, Chief Economist, CARE Ratings.

The session was moderated by RN Bhaskar, Consulting Editor, FPJ, and the panellists were welcomed by Dr Vaneeta Raney, Head, BMM department, SIES.

Edited excerpts

Why India!

Sai Sudha Chandrasekaran, Senior AVP, Invest India: The government has introduced a lot of initiatives to make the investment scenario better in the country. Invest India has seen this first hand.

Invest India is not just the voice of the government for investors but we present the view of the investors to the government. There is an equal emphasis given to both by Invest India. In some cases, Invest India helps investors from A to Z of investment and in other cases, there are specific requests from the investors or companies.

Over the years, the ease of doing business index of the country has improved dramatically — from triple digit to double digit.

In the last 12 months, one of the landmark reforms was corporate tax reduction. Today, we have one of the lowest in corporate taxes compared to ASEAN countries. We are competing with many advanced countries.

Indian subsidiaries of some foreign companies recorded a higher profit than their parent company. This has been the trend for the last one or two years. Despite COVID-19, this trend has gained momentum. While it is not very easy to do business in India, it makes a lot of business sense to set up shop in India.

Madan Sabnavis, Chief Economist, CARE Ratings: Working in a rating agency, we are confronted by a debate: Is India’s sovereign rating a fair one or not?

India is always at BBB-, on the verge of slipping into the sub-investment category. This is always countered with a point: International rating agencies could be having some kind of bias against emerging economies. Thus, India does not fair well. At the end of it, the question is what do foreign investors think about India.

If India attracts FDI of USD 65-70 billion and FPIs come with USD 30-40 billion at the best of times, it proves that foreign investors do not see India in the sub-investment category. The rising FDI in India shows the faith reposed by the foreign investors.

From 2000 onwards, the real data around FDI is available. There have been different phases when FDI was increasing. There was a point when India attracted FDI in the range of USD 10-20 billion on an annual basis. At one point, the range of USD 30-40 billion was a new high. Today, India has attracted FDI in the range of USD 60-70 billion since 2014. It is good progress.

Vivek Sonny Abraham, Vice President, Invest India: India is among the top recipients of FDI. This is quite an achievement for us. In the past, many European and the United States investors were not ready to touch India. Since 2015-16, investors were considering India a location to invest.

Today, there are even investors who wish to invest in India but are unaware of which sectors they should invest the money in. We guide them with options as well. This has been the case for many companies during the COVID-19 pandemic.

With companies in India bouncing back and reaching to pre-COVID-19 levels, many investors have taken note of this.

COVID-19-imposed trends

Vivek Sonny Abraham: Although countries have started vaccinating its populace, COVID-19 will stay as a seasonal flu and a cycle of COVID-19 will resurface every year. In addition, even if we overcome COVID-19, more such pathogens may occur. Asia is expected to experience the most severe impact of climate change. This can be a source of new pathogens. We need to accept this as a new normal.

We need to work around lockdowns and work from home.

COVID-19 has shown us that government and corporates can work very well — given that we have a very clear objective in front of us. During COVID-19, (we introduced) a very short feedback flow in case of a new set of guidelines. The companies will reach out to us saying that new guidelines are not working for them. This will then go to the backend of the system and the new set of guidelines will be issued. The companies have realised that the government is paying heed to their demand and that is encouraging them.

Global companies are well aware that their supply chains have weakened or are being weakened, and COVID-19 has exposed that. So, companies want to make sure that the supply chain does not get crippled as it did during the peak of the COVID-19. Manufacturing patterns had to change and supply chains had to reorient itself.

  • Case Study

Vivek Sonny Abraham: The prime example of supply chain disruption was seen with Apple iPhone 12. Apple iPhone’s new models are introduced every year in September —before Thanksgiving and Christmas holidays. This year it missed the date.

Apple iPhones were being shipped without a charger. The company does not want that to happen again. Thus, they have come to India in a big way. Now, the company has established a major centre in India. Seeing this, many others have ramped up their manufacturing capabilities in India or outside of their traditional manufacturing centres.

COVID-19: An opportunity or not for India

Sai Sudha Chandrasekaran: Due to one or two specific risks, foreign companies are considering diversifying and that is working in our favour.

Vivek Sonny Abraham: Technology and health will remain important sectors for a long time. These are not sectors of operation but themes that are cutting across different industries. Companies that can add a health and technology perspective to their business are doing well. Companies are building their supply chain and internal structure to capture that. India’s strength in healthcare and technology — across the value chain from talent to delivery — is an opportunity. This is mainly because no other country (India’s competitors) can offer technology and health — this is a strong advantage.

New opportunities have emerged due to COVID-19 for India. From never manufacturing PPEs before COVID-19 to becoming the second largest manufacturer of PPEs, and building business models around managing waste and pollution is impressive.

‘To do well going forward, you need to have India in your plans’ is a clear message to our clients.

Madan Sabnavis: There is a lot of liquidity in the market due to the quantitative easing programme of various countries (during COVID times). This increase in liquidity is a typical phase when the world economy is not doing well.

But when the quantitative easing programmes are withdrawn, it is then that India will have to ensure that the flow of FDI continues.

Many developed economies are trying to rebuild their economies. So, there will be a slowdown of the funds flowing from the West to East. The investors might say let us invest in developed economies and not in emerging economies.

Dealing with crisis

Sai Sudha Chandrasekaran: In June, the empowered group of secretaries was set up. This is a group of key secretaries who identify the bottlenecks in some of the large investments, and (study the) challenges investors are facing in India.

Yet another group called the project development cell was also identified. The sole function of this group is to identify investible projects; develop the investible project and take it to the market.

Meanwhile, every week, Invest India engages with all clients and investors. Our role is to take these issues to the empowered group of secretaries and project development committee to ensure that everything is moving very fast. The biggest ambassadors of India are the ones who have already invested in India.

Encourage investments across sectors

Madan Sabnavis: FDIs largely flow into non-controversial sectors like banking, IT, FMCG, automobiles etc. But FDI is low in any sector where there was or could be controversies like natural resources or telecom. This is mainly because investors are wary of the fact that there will be a change in law and it could backfire. The investments should not be limited to a few sectors, but should be spread across all the sectors.

Businesses are ready to take risks but if the business is unfavourable, investments are kept away from those businesses.

The number of USD 70 billion is not going to go up that easily. This is because the cost of doing business in India is very high. Most of FDIs are getting concentrated in certain sectors. Adding to it is the fact that it is getting concentrated in certain states. The states that are more progressive end up attracting more investments. We have to address these issues. Unless these issues are not addressed, investments will not balloon up as expected.

Sailing through hurdles

Madan Sabnavis: There is a lacuna in infrastructure and various sectors. Businesses do not like uncertainty. The clear environment is needed in the case of regulations which we will have to work towards.

Being a federal structure, the state and centre have to be on the same page. Let us have an easy environment for an investor, especially because we need investments.

Vivek Sonny Abraham: Uncertainty has been a complaint that has been raised several times about India. But there are factors that you need to take into account while investing in India — one India is a democracy and there are a certain value and cost in investing in a democracy.

It is not a unique cost to India but it is across democratic countries. This is mainly because the government is answerable to people and there are many opinions and views. It is difficult to get consensus in India.

We must take a long-term view. The great success stories of foreign investors in India are mainly of those who have maintained a long-term view. If you are worried about the short-term hurdles and blips, then, India is not the right place to be.

We have inherited a messy system — state and federal level system. There is an intent to make the system simpler.

Domestic investments are welcomed too

Madan Sabnavis: In India, we are talking about USD 5 trillion economy, around Rs 375 lakh crore of the GDP. So, 30 per cent should be the investment on an annual basis (Rs 110 lakh crore of investment is needed on an annual basis). Today, even if I am looking at USD 100 billion coming through FDI, that comes to Rs 8 lakh crore — it is a small proportion of Rs 110 lakh crore.

While this is an important part, India will also have to concentrate a lot more on domestic investment and that will be the driver of the USD 5 trillion target. FDI will be more like a supplement.

Vivek Sonny Abraham: FDI is not only about dollars a foreign investor brings in, but the ecosystem that they are trying to build. There is a huge multiplier effect. But investments are not only FDI but domestic investments too. We are not making policies for foreign investors alone but domestic investors as a whole.

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