India eyes $100 bln annual FDI as it woos investors looking beyond China

India is targeting a minimum of $100 billion annually in gross ‘Foreign Direct Investment’ (FDI) as the South Asian nation is actively seeking to attract investors who are seeking diversification away from China, according to a report by Bloomberg.

In an interview with Bloomberg, Rajesh Kumar Singh, secretary in the Department for Promotion of Industry and Internal Trade said “Our target is that we will average at least $100 billion over the next five years. The trend is very positive and upward,”.

This ambitious goal contrasts with an annual average of over $70 billion in Foreign Direct Investment (FDI) in the five years leading up to March 2023 and marks a potential reversal in trend following last year’s decline. Singh indicated that the figure for the current fiscal year is expected to be “closer to” the $100 billion target.

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India, known as the world’s fastest-growing major economy, is increasingly appealing to businesses seeking to mitigate geopolitical tensions by diversifying their operations—a strategy often referred to as “China plus one.” Companies such as Apple Inc. and Samsung Electronics Co. have expanded their manufacturing presence in India, capitalizing on incentives provided by Prime Minister Narendra Modi’s government.

However, despite the growth in local manufacturing, foreign investment hasn’t seen a similar surge. Singh attributed this to higher inflation and interest rates in developed nations, alongside geopolitical conflicts and risk perceptions surrounding emerging markets.

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Singh highlighted India’s unmatched market growth opportunities in various sectors such as electric vehicles, electronic goods, and general consumer goods, where penetration levels among the population are notably lower than the global average. He emphasized that the government is committed to implementing further measures to ease FDI regulations.

One of the key pledges made by Prime Minister Modi, who is seeking a third term in the upcoming elections starting on April 19, has been to increase the share of manufacturing in India’s economy.

Foreign investors have bet big on India since PM Modi came to power in 2014, with the likes of Apple, Samsung, Kia, and Airbus expanding operations.

This investment has come despite criticism from some executives who say Modi’s protectionist policies in sectors such as digital payments, manufacturing and e-commerce often promote local businesses to the disadvantage of foreign companies.

India attracted FDI inflows of $33 billion in the first six months of the current financial year that started in April 2023. It recorded FDI of $71 billion in the 2022-23 financial year.

India expects its economy to grow by 7.3% in this financial year, the highest rate of any of the major global economies, but it still has large numbers of unemployed young people - a key issue in the upcoming elections.