FDIs WILL COME DESPITE IMF & COVID!

Sometimes, it is difficult to make sense of news, especially when we hear two news, which completely, diagonally opposite.

Now take this. IMF, yesterday predicted dooms day for India – it slashed India’s growth forecast and said that it was facing the biggest contraction among the emerging markets in the wake of the pandemic.

IMF expects India’s GDP to shrink 10.3% in FY21, which was a huge contraction from its earlier estimation in June at 4.5% decline. This huge 5.8% downgrade is the biggest in the world’s economies.

On the other hand, for China, where the outbreak of the virus originated, IMF expects a 1.9% growth this year, up from its earlier forecast of 1% in June.

So, we have this declining growth trajectory from IMF and then there is the other news – according to the FDI survey released yesterday by CII in association with Ernst & Young (EY), India has emerged as one of the top three choices for investments in the next 2-3 years.

The findings of the survey:

• Around 50% of the respondents see India amongst the top three economies or leading manufacturing destinations of the world by 2025.
• 25% of the respondents, who represent non-Indian headquartered (HQ) MNCs, view India as the first choice for future investments.
• 80% of the respondents and 71% of non-Indian HQ respondents plan to make investments globally in the next 2-3 years.
• 30% of companies are planning to invest more than $500 million in India.
• 52% of Indian HQ companies believe corporate tax rate reduction would be the prime mover of future investments

The respondents said that the top three reasons why India emerged high was on account of market potential, skilled workforce and political stability. Other favourable factors included cheap labour availability, policy reforms and availability of raw materials.

The top three areas where the Govt needs to put all its focus on - Infrastructure development, faster clearances, and proper implementation of improved labour laws and labour availability. They also cited R&D and Innovation high on the ‘wanted’ list and tax reforms too made it among the top five.

Right now the FDIs are not exactly coming pouring in. According to Department for Promotion of Industry and Internal Trade, FDI equity inflows into India fell by 60% (YoY) in Q1FY21 to $6.56 billion from $16.33 billion. That’s no surprise as this was probably our worst period ever during this entire pandemic. But what is good to know is that India holds the lure.

What this survey indicates is that the world is indeed looking at India; the pandemic has not dented its image as everyone knows, this too shall pass. Yes, as IMF has indicated, the immediate future holds a lot of pain but going ahead, things will only get better.