The global economy will face unprecedented instability and disruption in the next few years. A perfect storm is created by a number of unforeseen factors, such as a resurgence of the pandemic in some places, severe lockdowns in China and Russia’s war in Ukraine. This has led to global disruptions in supply chains, food and energy crises, inflationary pressures and a slowdown in overall growth.
Amidst these challenges, some global firms have decided to consolidate and recalculate their businesses closer to their home markets or to consolidate their business models into narrower verticals. Others are re-aligning their businesses to ESG priorities, shareholder activism and more expensive capital availability. Some of these firms have decided to withdraw from emerging markets such as China, India and other Southeast Asian countries. Such consolidation inevitably occurs during the lean growth phases. Some companies expect to scale down their operations in distant geographies. The various internal preferences and pressures of the external environment are specific factors and have no direct relation to the investment climate of a nation.
India will continue to be a major destination for MNCs due to its huge economy, strong growth, huge consumer market and its skilled and cost-competitive workforce. Considering the better income and purchasing power of Indian consumers, today companies want to manufacture in India.
Given the geopolitical situation globally, manufacturers across the world are now adopting a ‘China-plus-one’ strategy and diversifying their production away from China, which is currently locked in a trade dispute with the US. . The biggest benefit of this are the Southeast Asian countries. However, no country can absorb the demand or has the capacity to meet the manufacturing demands of the world economy. India has both the required workforce and infrastructure. This is already visible in its exports, which are now growing strongly after more than a decade of sluggish growth.
These trends were validated at the World Economic Forum meeting in Davos, with less participation from China and Russia, but a larger contingent from India. Global investors were quite vocal about India being the best investment destination due to its policy changes and structural reforms. Other governments have also supported India’s rising position in the world economy.
Given the success of Digital India, a vibrant startup ecosystem, improved infrastructure and a stable macroeconomic policy regime, India has emerged as an attractive investment destination. Production Linked Incentive (PLI) scheme has also attracted many large manufacturers to set up facilities in India. Recently, seven foreign groups with proposed total investment 3,559 crore received the approval of their applications under the PLI Scheme for Textiles.
With multinational companies opening research and development centers in India, the efforts of the Indian government have paid off as the country focuses on becoming a knowledge and innovation hub. Several US companies have confirmed that they are ramping up their India operations. India and Taiwan have also started discussions on a free trade agreement and the construction of a semiconductor manufacturing center in India to meet the growing demand.
India’s global competitive advantage of a talented English speaking engineering workforce also makes the country the service provider of choice. Along with flexible work policies, our cost-effectiveness and capabilities are promising. In addition, we will continue to shelter one of the world’s youngest populations until 2030. Estimates suggest that around 42% of India’s population will be urbanised, offering a strong pipeline of talent.
Structural reforms such as India’s bankruptcy law, GST adoption and real estate regulation have improved decision-making speed and transparency. The government has not shied away from addressing global concerns about legal differences. Consider the case of Cairn Energy; Several long-running litigation cases over the taxation of offshore sales of Indian assets were settled when India refunded 7,900 crore in retrospective-tax dispute.
Within the next three to five years, we expect similar policy changes in sectors such as renewable energy, electric vehicle (EV) manufacturing, exports and agriculture. As a result, businesses in these sectors will do well. The EV industry in India has witnessed considerable growth thanks to a 100% foreign direct investment policy, emergence of new manufacturing hubs and a quick push to improve charging infrastructure. In addition, in September, a PLI scheme for the automotive sector was approved by the cabinet to promote the manufacture of electric vehicles and hydrogen fuel cell vehicles.
India’s business landscape is now more open and accessible to global companies. The policy focus on facilitating global investment has further opened up India’s economic potential. Global companies like Apple, Google and Microsoft have achieved success in India through their strategic partnerships with people, corporations and government.
India is on its way to become a $5 trillion economy, as we collectively match the strength of our actions with ambitious aspirations. Despite global constraints, foreign investment in India will continue to grow as the country enhances its credibility as an attractive investment destination.
Manisha Girotra is the Chief Executive Officer of Moelis India