India needs $8 trn new greenfield assets to be $5 trn economy by FY27: Report

The report by Deloitte said despite the COVID-19 disruption, FDI inflow into the country provides necessary optimism and display underlying strengths of the Indian economy. In FY2020-21, FDI inflows (including equity, re-invested earnings, and capital) amounted to a record USD 81.72 billion, 10 per cent higher than the previous financial year, it said.

 

New Delhi, Sept 14:
India will need USD 8 trillion (around Rs 588 lakh crore) of gross capital formation or new greenfield assets to become a USD 5 trillion (around Rs 368 lakh crore) economy by FY2027, a report said.

The report by Deloitte said despite the COVID-19 disruption, FDI inflow into the country provides necessary optimism and display underlying strengths of the Indian economy.

In FY2020-21, FDI inflows (including equity, re-invested earnings, and capital) amounted to a record USD 81.72 billion, 10 per cent higher than the previous financial year, it said.

While India remains a favoured foreign direct investment (FDI) destination, the country must enact more reforms to ensure FDI flows not only continue but also play a meaningful role in attaining the USD 5 trillion economy target, the report compiled based on the survey response of 1,200 business leaders of multinational corporations in the US, the UK, Japan and Singapore said.

It found that India remains an attractive destination for investments, scoring highly for its skilled workforce and prospects for economic growth. It also suggested that the country must continue to enact reforms and initiatives that drive improvement, building confidence in and enhancing the competitiveness of India's economy.

While these inflows were driven primarily by the services sector, a more proportionate contribution to gross capital formation and the increase in exports can be achieved through greater FDI in manufacturing, it said, adding, average FDI from FY15 to FY21 in manufacturing was USD 8.6 billion compared to about USD 25 billion for services.

''Our analysis shows that India will require at least USD 8 trillion of cumulative gross capital formation to grow into a USD 5 trillion economy, assuming we are on the fastest growth track. Based on past trends, our research suggests India needs approximately USD 400 billion of foreign capital cumulatively over the next six years,'' it said.

Attracting FDI in capital-intensive sectors is key to the country's gross capital formation and establishing its position as a global trade partner, it said.

International investors remain confident of India’s short- and long-term growth prospects and are readying plans to make additional and new investments in the country, according to a survey of 1200 business leaders released by Deloitte.

India has attracted foreign direct investment at record levels even during the COVID-19 pandemic with total FDI inflows amounting to $81.72 billion in 2020/21, 10% higher than the previous financial year.he survey conducted at the peak of the second wave of the pandemic showed 44% of the respondents across the United States, UK, Japan, and Singapore said they were planning additional or first-time investments in India.

Amongst new investors, nearly two-thirds are planning investments in India within the next two years, it showed.

Utilities, particularly energy infrastructure, got 57% votes in terms of sectors that will see new investments while financial services at 49% and healthcare at 48% were other highly ranked sectors.

Deloitte said FDI is widely regarded as a foundation for accelerating a country’s economic growth.

“While foreign investment inflows into India have been consistently rising over the past five years, they have not contributed proportionately to the country’s capital formation and GDP,” the report said.

India’s Prime Minister Narendra Modi in 2019 had said his country aimed to be a $5 trillion economy by 2024. India’s GDP is currently less than $3 trillion.

While India is perceived as both politically and economically stable, it scored lower on institutional stability i.e., regulatory clarity and efficient judicial redress and mechanisms, the survey showed.Inadequate infrastructure was another negative factor cited by existing and potential investors.

“After the challenges of the past 18 months, the Deloitte survey is a positive validation of the underlying strengths of the Indian economy, in particular its appeal for foreign investors,” said Punit Renjen, Deloitte Global CEO.

India can target attracting greater FDI into seven capital-intensive sectors—textile & apparels, food processing industry, electronic goods, pharmaceuticals, vehicles & parts, chemicals & API, and capital goods—that have contributed USD 181 billion of merchandise exports in FY2020-21, it said.

According to Deloitte research, India can target an additional US$1 trillion of merchandise exports in the next five years by attracting higher FDI into capital investment-led focus sectors through schemes such as Product Linked Incentives (PLI).


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