Emerging Market Economies

FTMBA, Year 2, Trim 4, 2021- ‘22

GROUP 8

A027 – Simranjit Singh

E025 – Dhruv Khosla
I009 – Nikhil Mantry
I025 – Saransh Singhal
I027 – Aarushi Alagh
I057 – Mehek Rai

Submission Date: 24th August 2021

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Introduction

Once known as ‘The Golden Bird’, India was left in tatters when it was finally liberated from the British
rule in 1947. At the time of independence, the population of the country was 340 million, literacy rate was
12% and the GDP stood at Rs 2.7 lakh crore (contributing to just 3% of the world GDP).
The country, since then, has seen a number of economic reforms, which have contributed in reaching where
India currently stands. The Indian economy saw a boost in the 1990s, post implementation of the LPG
strategy (Liberalization, Privatization, Globalization).

In 1991, the then Prime Minister of India, P.V. Narsimha Rao initiated the LPG reforms. Under this strategy;
the government loosened its control on the economy by reducing the number of restrictions assigned by the
government (Liberalization), allowed private players to enter the market in order to reduce the ownership
of public sector via disinvestment (Privatization), and ultimately opening the Indian economy to the world
(Globalization). The impact of LPG was soon seen as the GDP growth rate shot up to 8% per annum, fiscal
deficit reduced to 4% of the GOP (Gross operating Profit) and poverty was reduced.
India has come a long way since then. Many factors have been credited with this economic change, with the
expansion of the software sector and the government's pro-liberalization stance, as opposed to the more
centrally planned socialist strategy of the past, being praised as the key drivers of progress. At present, India
stands as the second most populous nation, with a population of about 1.37 billion people, GDP as $2.7
trillion (a slight dip from the previous year due to the COVID 19 pandemic), and literacy rate is close to
80%.

However, it is imperative to consider whether India’s growth is sustainable or not. Hence, the Covid-19
issue that emerged from last year, there was talk of a trade-off between lives and livelihoods. As India
struggles to cope with that, it is apparent that it failed in both aspects. While India's policy reaction was
strong in some parts of lockdown vigilance, it was ineffective in dealing with the public health and economic
dimensions of the crisis, as well as the effects of the crisis. Therefore, it becomes important to analyses the
sustainability of the growth of the country.

Macro-Economic Indicators

1.) GDP & Growth: Real GDP of India for FY2021 is 195.86 lakh crores and currently India is the 5th
largest country in terms of GDP. With its robust democracy and strong alliances, India has emerged
as the world's fastest growing major economy and is likely to be one of the top three economic
powers in the next 10 to 15 years.

Components of GDP: -
• Consumption (C) currently accounts for 57 % of overall GDP. India is the second most
populous country in the world. Therefore, consumption has traditionally been the driving
force and foundation of India's economic narrative, accounting for over a quarter of the
country's total GDP. It demonstrates that consumer demand has a bigger influence on the
whole economy.
• Investments (I) have slowed in the country, with investment growth falling to 1% in the past
quarter. The main reason for this is a lack of customer demand. This has been the country's
pattern for the previous several years, resulting in a reduction in economic growth.

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 • Expenditure (E), the country's government expenditure has increased in recent years in order
to boost the country's GDP. Government spending increased by nearly 15% and 9.25% in
2017-18 and 2018-19, respectively. This is why, even at their current low levels, India's
growth figures are unsustainable if the existing quo is maintained.
• Net Exports (X-M): - The country's trade imbalance has been demonstrated in the past. In
the past, India's growth has been driven by consumption, as seen by double-digit imports and
poor exports.
Growth Drivers
• Labor - India's structural employment growth contributed about 1.4 percentage points to
economic growth in the previous decade, as the country's working-age population increased.
As a result of the epidemic, there has been a shift in labor, resulting in a drop in contribution.
With 2022, growth contribution to structural employment is expected to rise.
• Capital - Because it is a developing market economy, the country has experienced a huge
influx of capital investment in recent years. As the country adjusts to the new normal, capital
investments have experienced a robust comeback after a lengthy period of stagnation.
• Total Factor Productivity (TFP) – Grew from 3.6% to 14.6% between 2000-18 due to
rapid globalization.
(Labor, Capital, TFP & GDP trends over the years, shown in Exhibit 1)

2.) Unemployment: Current unemployment rate is 7.57% (9.34% urban and 6.77% rural). Exhibit 2
showing Unemployment rate affected due to Covid. Female unemployment rate is double of men’s
unemployment rate. Prior to the epidemic, India's capacity utilization was about 75%. The rate fell,
but has now risen to 65 percent, indicating that there is still a lot of room for development. Other
indicators that are used are as increase in electricity access, poverty and hunger rates. New labor
laws have been implemented under which threshold for approval for layoffs have been increased
from 100 to 300, contract workers code will apply to contractors employing more than 50 workers
and single license for staffing firms. Underutilization of capacity, a high but declining
unemployment rate, new labor laws demonstrating favorable government decisions and the
availability of skilled labor, as well as a continuous improvement in worker lifestyles, show that
India as a country is appealing to businesses in terms of labor.

3.) Inflation: Current, Inflation rate is 6.26%. Inflation trends over the years shown in Exhibit 3. The
rapid rise in commodity prices throughout the world has contributed to the rise in inflation in India.
Import costs for critical products have risen as a result of this. Because food expenditure accounts
for such a large portion of our CPI basket, any change in food prices has a major impact on the
overall CPI inflation number. High food inflation has been one of the factors driving up total
inflation. An increase in gasoline and transportation expenses has also contributed to the rise in CPI.
Interest rates in India have fallen as a result of rising inflation, trapping the country in a liquidity
trap.

4.) Debt & Deficit: Due to the covid epidemic, India's debt-to-GDP ratio rose from 74% in 2019 to
90% in 2020. As a result of the country's economic recovery, it is projected to decrease. The Indian
government's domestic debt is projected to be 39% of GDP. During the years 2012 to 2021, the
internal debt share fluctuated between 37 and 39%. India's external debt to GDP ratio for 2019-2020
was 20.6% and 21.4% of GDP for end-December, according to the RBI's annual report. Non-resident
deposits accounted for the majority of the increase. The rise was further aided by a US$ 11.4 billion

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 valuation loss due to the devaluation of the US dollar versus the Indian rupee and other currencies.
Owing to an increase in expenditure due to the outbreak of COVID-19 and a decrease in revenue
during this fiscal year, the government predicted a large fiscal deficit of 9.5% of GDP, in the Budget
for 2021-22. In 2019-20, the fiscal deficit reached a record high of 4.6 percent of GDP, owing to low
tax generation. Deficit Trends over the years shown in Exhibit 4.

5.) Exchange Rates: In June 1991, India's foreign exchange reserves of $4.7 billion were barely enough
to cover 15 days of imports. On the other hand, while facing a difficult year due to the pandemic,
these stockpiles of $605 billion cover imports for more than 18 months as of June 4, 2021. Over the
years, India has kept current account deficits at a manageable level, and short-term debt-creating
flows has been discouraged while long-term non-debt-creating flows have been promoted. It’s also
recognized that a market-determined exchange rate, which acts as an automatic stabilizer, is essential
for guaranteeing the current account balance's long-term viability.

6.) Savings and Investments: The saving rate in India has risen steadily since independence, from
around 10% in the early 1950s to 17% in the early 1970s, and then to over 25% by the new
millennium. India's public saving rate rose gradually from 1.7% in the early 1950s to over 4% in the
late 1970s, then fell slowly to less than 1.5% by the late 1990s. By the late 1990s, public saving had
dropped to about 7% of total savings, down from over 20% in the late 1970s, a reduction that can be
linked to rising fiscal deficits during this time. Domestic savings have been the primary source of
funding for domestic investment in India. Inflows of foreign capital accounted for less than 1% of
GDP. Although India has been a large beneficiary of international help, total aid flows have remained
insignificant in comparison to the size of the economy. Foreign direct investment, various kinds of
private capital, portfolio investment, and bank-related flows have played a smaller role, indicating
the Indian government's refusal to accept foreign investment without conditions and the country's
extremely restrictive capital account system.

Government Policies

➢ LPG

India opened its economy to the world in 1991, as part of the Economic liberalization measures taken. LPG
policy was initiated to make the country more open and freer for business. Liberalization led to deregulating
the industrial sector, initiating tax, foreign exchange, trade and investment policy reforms. These reforms
helped in promoting domestic business, increasing privatization and developing a global market.
Privatization was done with the intent of salvaging the inefficient PSUs and providing a base for FDI inflow
in the economy. These reforms helped in increasing government revenue from sale of loss-making units,
improved working efficiency for these companies and provided healthy competition in the economy.
Globalization was done to integrate the Indian economy with the world. It meant allowing free movement
of goods, technology and knowledge across country boundaries. It involved major equity market reforms,
promotion of FDI by increasing its upper limit to 51% from 40%, 100% international capital was also
allowed in high priority industries, reduction in international trade duties and other quantitative norms,
methods of sanctioning FDI in almost 35 sectors was also reorganized and the Indian Rupee was now an
exchangeable currency for the trading account. These reforms led to increased employment, better selling
opportunities and prices for businesses, enhancement of infrastructure and standard of living in India and
most importantly increase in foreign capital influx in the country.
Foreign capital inflow in India touched $5.3 Billion in 1996, from $132 Million in 1991.

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 ➢ The abolition of Foreign Investment Promotion Board

Until 2017, if the FDI amount was greater than INR3000 Cr, then it must be approved by the government
based on the recommendation of FIPB. However, in the budget of 2017, the government announced that
FIPB will be replaced by Foreign Investment Facilitation Portal (FIFP) which will be overseen by the
Department of Industrial Policy and Promotion (DIPP). The objective of setting up FIFP was to enhance
transparency, reduce paperwork and red-tapism, increase speed of approval (as the department was given
fixed time to respond to the proposal) and to make a single point for all news and policy decisions related
to FDI. Government departments were given the right to approve FDI after following the standard operating
procedure issued by DIPP.

In order to introduce uniformity and speed, DPIIT announced a Standard Operating Procedure (SOP) for
assessing FDI proposals. This was done in order to make the process simpler and more convenient for
investors. Once the application is filled out online on the Foreign Investment Facilitation Portal, it is then e-
transferred to the relevant department within 2 days. Post which the department has to approve or reject the
application within 8 weeks, or within 10 weeks if security clearance is needed. This timeline is further
divided in sub-timelines as well, in order to fast-track these applications.
Though it is not being implemented very accurately, yet it is a step in the right direction and the government
is trying to make the FDI application process smooth by improving their investment portal to show the status
of a FDI Application, once submitted. They are also cumulating data to display rough time taken for
approvals for the FDI applications, so that the deal and transactions can be structured based on the approval
timelines.

➢ Make in India

Make in India has been one of the most primary schemes of the current government with which it has tried
to transform India into a manufacturing hub. Since the launch of this campaign, India received FDI inflow
of $286Bn (between April 2014 and March 2019) which is approximately 47% of the total FDI inflows the
country has received since April 2000. In order to promote manufacturing in the country, the government
gave multiple incentive to manufacturers and was successful in getting companies like Apple to not only
assemble their product in India, but also manufacture parts. The biggest increase in FDI was witnessed in
auto sector which witnessed an 80.18% increase between 2014-19 as compared to the previous five years.
Similarly, policy changes under Make in India enhanced FDI inflows in sectors like renewable energy,
textile, electrical machinery. In order to enhance manufacturing in the country, the government is laying
special emphasis on building up infrastructure as per the global standards in the country. Overall, there are
15 manufacturing and 12 services sectors under Make in India where the government is laying emphasis to
get investment. The objective is simple, make the product in the country and sell it anywhere (domestic
market or abroad). Under this initiative, as an added incentive, the manufacturers are allowed to sell their
products through wholesale as well as retail including e-commerce under the automatic route.

➢ Production linked incentives

Another reform that India undertook that gave boost to manufacturing was the “Production Linked
Incentives” scheme in March 2020. Implemented across 13 key sectors of the economy with an expenditure
of approx. 2 lakh crores, this scheme was expected to boost employment opportunities in the country as
well. The PLI scheme offers a simple and direct incentive based on incremental sales. Under it, there is 4%
to 6% incentive on incremental sales for 5 years after the base year. In 5 months after getting implemented,
this scheme was able to get equity inflow of INR 1300 Crore from companies like Samsung, Foxconn, rising
star, etc. and generated around 22000 jobs. Since this is an outcome-based scheme where the incentive will
be delivered only after the result has been achieved, i.e., production has been completed in the country, it
will be an incentive for companies to invest in India. Under PLI, the basic premise of size and volume
playing an important role encourages big manufacturing giants to enter the country and take advantage of

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cheap labor while delivering high volumes.

➢ Ease of Doing Business

India has been improving its Ease of doing business rank by promoting industrial and manufacturing
companies via SEZs, tax incentives, implementation of a nation wise uniform tax system of GST and
modernization of various regions to create “smart cities”. Currently, India holds the rank of 63rd amongst
190 countries on the ease of doing business chart. The survey depicts that India has improved its
performance on 7 on 10 indicators of doing business.
Special Economic Zones also promote and help India in becoming more investor friendly and increasing the
ease of doing business ranking. SEZs offer 100% income tax exemption on export-based income for the
first 5 years, relief from GST and Minimum Alternate Tax, easy single window government approvals,
exemption from electricity duty and many more. These benefits make these Special Economic Zones very
inciting for investment.
Such movements help the country in attracting FDI in high numbers and making India the investor hub.
(Factsheet on Special Economic Zone shown in Exhibit 5)

➢ Foreign Venture Capital

In 2000, Foreign Venture Capital Investor Regulations were announced in India. As per definition, it is “An
Investor of foreign incorporation or establishment registered under the FVCI regulations and investing in
venture capital fund or venture capital undertakings in India.”
FVCI can now invest 100% of their funds in a Venture Capital Fund under SEBI. It is compulsory for them
to invest in at least 66.67%of its funds in unlisted shares of Venture Capital Undertakings in India. These
investors were provided ample exemptions in terms of taxations, exit norms and pricing and relaxed
regulations to attract them towards the Indian market. They are allowed to purchase businesses in the IT,
Biotechnology, Infrastructure, hospitality industry and few more.

➢ Bilateral Treaties

India has signed multiple bilateral investment treaties with other countries. These are meant to encourage
foreign investment and protect investors in each other’s country. This is not only restricted to private
investment, but also involves investment by a country’s government into another country. India has signed
approximately 86 Bits with different countries including UK, France, Germany, Canada, etc. (mix of
developed and developing countries). These are believed to be an important source of FDI as such
investment treaties help in increasing the confidence of investors in terms of getting a level playing field.
The distinctive feature of many BITs is that they allow for an alternative dispute resolution mechanism,
whereby an investor whose rights under the BIT have been violated could have recourse to international
arbitration. This is through International Centre for the Settlement of Investment Disputes, rather than suing
the host State in its own courts. This process is called investor state dispute settlement. This mechanism
makes sure that investors are treated equally and due to any of the state’s decision, they are not at any
disadvantage. These BIT’s create favorable conditions for investment into India. India’s score in index of
transaction transparency is 8 which is greater than the South Asian average of 5. A similar trend can be
observed in index of Shareholder (Investor) power and index of manager responsibility (greater the index,
easier for company to take legal action) where India has a score of 7 in both the index vs the South Asia
average of 6 and 5 respectively.
In 2015, India had created a new model Bilateral Investment Treaty to replace the existing Bilateral
Investment Promotion Model. This update was done to prevent exploitation under the previous treaty. Even
now investors could go to for ISDS, however only after they have gone through a trial in domestic court.
This was viewed by the international community to be a protectionist step. While the Indian judiciary is

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viewed to be independent, it is the delay in judgements that acts against the country in being favorable
destination for investment.

➢ Invest India

Invest India is the National Investment Promotion and Facilitation Agency of India, set up under the aegis
of Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India.
The aim of Invest India is to facilitate investment into the country, promote ‘Make in India’ and provide
support to all investors. Invest India, as the name suggests, is designed to attract and retain high quality
investments into India. It has experts as employees which provide sector specific and state-specific support
and advisory. It acts as a one-stop shop for investors to get their queries cleared and the investors receive
support from them through their entire investment journey. They not only assist in terms of policy, but also
address the issues of investors and provide business advisory. It has specific country specific desk where
investors from that country to reach out to.

In 2015, the government of India had also setup FDI India to bridge the gap between Indian entrepreneurs
looking for foreign investment and investors. It helps in creating a suitable investment environment in the
country by helping the investors not only during the pre-investment phase but also going beyond to the
extent of providing post-investment care. FDI India creates value for investors by guiding them about the
correct process of investment in India and providing expert advice is sectors like education, hospitality,
manufacturing, pharma, etc. They also help in providing financial structures to investors
FDI India guides Indian firms looking for foreign investments by making them understand guidelines for
FDI and correct investment routes. Apart from that they also businesses by connecting them to foreign
investors and pointing out if the venture may face any challenges in the future. Lastly, they also businesses
with soft loans i.e., loans on below market interest rates.

➢ FDI policy and regulations

In order to attract foreign capital, the FDI policy is tweaked frequently to make it more investor friendly.
Over the past decade the policy, has underwent a lot of changes to accommodate for the investors and
promote growth of FDI in in the country. India’s policy allows non-resident investor to pay 25% of the total
payment, via a deferred payment system over 18 months. The FDI Policy allows 100% investment via
automatic route for a lot of sectors in our country and the list for that keeps growing with every amendment.
Recently, FDI in investing NBFCs was allowed to be 100% via automatic route. FDI in Defense sector was
increased from 49% to 74% via automatic route for permitting companies which are seeking new industrial
licenses. However, all investments made in the defence sector can be previewed on terms of ensuring
national security.
FDI is now allowed up to 100% via automatic route (previously it was 49% via automatic route and rest via
government route) in the single brand product retail trading. Insurance companies can also invite 100% FDI
via automatic route, as opposed to 49% under automatic route earlier.
During the pandemic, the government released an amendment stating that all FDI generating from border
sharing countries of India, will be entering Indian businesses via government route of approval and not the
automatic route. This policy was not sector specific.
FDI Rules for the e-commerce were also updated in order to protect everyone’s interests. E-commerce
entities with FDI, will have to submit statutory auditor report by 30th September every year, mentioning that
the compliance regulations are being met. Also, E-commerce market company cannot mandate sellers to
sell any goods exclusively on its platform only.

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 ➢ Current FDI Route and Permissible Limit Regulations

The two methods of getting investment approval in India, first is getting investment from the automatic
route or the RBI route and the second one is getting investment from the government route (otherwise called
FIPB course).
Investment via automatic route requires no approval either by the GOI or by RBI. Investors just need to
advise and record reports in the concerned RBI office.

➢ Recent Trend and Growth in FDI

The IT (Electrical Equipment) business is one of the roaring sectors in India. In Asia-Pacific region, India
is the leading country in terms of IT business. With more global organizations entering this sector, the
Foreign Direct Investments in India has been marvel over the course of the year. PC programming and
equipment arose as the top areas drawing in the greatest portion of FDI value inflow, at 44%, in FY21.
Between April to December 2020, FDI value inflow in this area added up to US$24.4 billion, recording a
four-crease bounce from FY 2018-19 when the figure was around US$6.4 billion. In FY20, FDI into this
area was US$7.7 billion. Numerous variables like sped up digitalization, expanded utilization of

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computerized reasoning (AI) to defeat obstructions set by the pandemic, and expanded arrangement centre
around assembling in India have added to this great ascent in unfamiliar speculation. The recently presented
creation connected motivator (PLI) plans, expected to support trade-arranged speculations, ought to speed
up this pattern.
The fast improvement of the telecommunications industry was because of the FDI inflows in type of global
players entering the market and move of trend setting innovations. The telecom business is one of the
quickest developing ventures in India. Telecommunications industry consists of Telecommunications,
Cellular Mobile and so on. India received cumulative FDI inflows of US $100.4 billion during 2000. Out of
this, Telecom Sector received an inflow of around USD 8.2 billion, which is 8.4% of the absolute FDI
inflows during August 1991 to December 2008. There has been a consistent progression of FDI in broadcast
communications from the year 2000 to 2011; however, there is a dramatic ascent in FDI inflows after 2011
till 2021.
The public authority revised the FDI strategy on drug area in June 2016 by permitting 100% FDI for
greenfield drug projects and up to 74 percent FDI for brownfield drug projects through the automatic route
and post that through government's endorsement. The pharma and drugs sector are seeing a period of
unmatched development and advancement. Medications and drugs are India's biggest areas both as far as
income and as far as work are concerned. FDI in this sector has been rising linearly.

From January 2000 to March 2009, the development of the services sector- both financial and non-financial,
have change the structure of unfamiliar direct investment in India. In the second decade of the financial
changes, this sector accounted for 27% of complete FDI and held first position in appealing area for
unfamiliar financial backer. This is because of the development of sub areas like IT, Monetary Services,
Insurance area extra. There is another wave in the development of Indian monetary area after progression
protection industry developing with fast rate. The quantity of consolidation and procurement in the
protection business just as in financial area additionally, number of private banks are filling in India. The
services class in India pulled in aggregate FDI worth US$ 85.86 billion between April 2000 and December
2020. The administrations class positioned first in FDI inflow according to information delivered by the
Department for Promotion of Industry and Internal Trade (DPIIT).

Sectors that saw the steepest decrease in approaching FDI inflow contrasted with the past monetary are
media and telecommunications (- 94%) and hotel and the travel industry (- 84%). While FDI into the
broadcast communications area added up to US$4.44 billion in FY20, it dropped to a simple US$357 million
in the initial nine months of FY21. (Amount of FDI inflows from 2005-06 to 2020-21 shown in Exhibit 6)

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Risks and Opportunities present in India that would affect Investments

Risks

India being an emerging market encounter rapid industrialization and frequent experience high levels of
economic growth when compared with the developed nations. This results in strong investment returns.
However, with returns comes risks which are comparatively higher in emerging markets than the developed
markets. Uncertainty pertaining to politics and more vulnerability to booms and busts. Before investing in
any country, investors should pay close attention to certain aspects of country’s political conditions as well
as the possibility of unforeseen political developments. In India, there are a variety of risks that could affect
investments:

• Since economic liberalization in the early 1990s, India’s GDP has increased more than tenfold, to
$2.94 trillion in 2019, making it the world’s fifth largest economy. A number of reforms along with
economic liberalization in India in India was able to pull out more than 270 people from poverty.
Many policies and reforms have also been undertaken under the Modi government which has given
a boost to the economy. However, the economy faces structural issues, particularly in the state-
controlled financial sector, which has accumulated bad loans and non-performing assets over the last
decade. The covid-19 pandemic has also impacted the Indian economy as a whole. India's economic
growth trajectory has been thrown off by many Covid-19 waves, with the pre-coronavirus growth
path unlikely to recover until 2026. Both the banking sector's vulnerabilities and sluggish domestic
investments are cause for concern in India. These economic factors will pose a risk affecting the
investments in the country.

• There are a number of risks pertaining to corruption in the government, judicial systems and
corporate frauds that affect businesses in India and in turn pose as serious risk affecting investments
in the country. In the last couple of years, many frauds have been surfaced. Apart from these, internal
financial crimes, physical asset theft and even data theft are becoming common. All these directly
and indirectly have an impact on investments in the country by foreign investors.

• India’s workforce distribution in the various sectors is changing rapidly with more people being
employed in the service sectors. However, the dependence on agriculture sector is decreasing but
still this sector employs 44% of overall workforce of the country. This sector’s contribution is only
around 16% to the Gross Value Added. On the hand, the service’s sector employs 31% of the total
workforce while contributing around 54% to the GVA. 28% of the population is employed in the
manufacturing, while the remaining workforce is illiterate or has a reading level of below that of a
twelfth-grade student. This restricts the sectors in which foreign businesses can invest in India, and
it also proves to be one of the most significant risks of conducting business in India.

• Considering the slowing of the world economy due to increasing global debt, central banks are easing
monetary policy in high-income nations (devaluing the currencies of the emerging markets), and
social upheaval in many countries is increasing which is leading to pressurizing global economy.
These issues ultimately affect the global money movement and put pressures on the global trade.

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Opportunities

India possesses plethora of investment opportunities for foreign investors, driven by factors including
natural resources, growing market, location advantages, government policies, etc. During the COVID 19
pandemic, Indian economy did face a downfall like every other economy. But the response of the
government to reform the economy has instigated a feeling of confidence among the oversees shareholders.

• Prior to the COVID 19 pandemic, the country saw a GDP growth rate of more than 7%, making it
one of the fastest growing economy in the world, standing as the fifth largest economy in the world.
The fiscal deficit of the country was 3.9% of the GDP indicating the good health of the economy.
These macroeconomic metrics imply the upward trajectory that the Indian economy is facing, which
in turn is a salient point of attraction for foreign investors.

• In order to ease investing in India, the government has segregated the investment methods into two
routes. Under the automatic route, foreign investors are allowed to invest in the country without the
permission of the government or the RBI. Under the approval route, government permission is
required prior to the investment.

• The government has launched the Self-Reliant India Movement, also called the Atmanirbhar Bharat
Movement, which is in line with the Make in India movement. The PM of India, Narendra Modi had
announced economic packages worth more than $270 billion (approximately 10% of the GDP), to
support MSMEs and also relieve the economy of the stress caused by COVID 19.

• With population expected to surpass the 1.5 billion marks in the next 10-15 years, India is all set to
utilize its growing population to its advantage. Not only does it have the third-largest group of
scientists and technicians in the world, but is also home to one of the largest youth populations in
the world, which is expected to continue till 2030. This ensures a long-term skilled, energetic and
eager to learn population for foreign investors.

• India is working towards upgrading its existing and developing new age infrastructure. - Sagarmala
Project: The project taken by the Indian government to modernize existing ports and set up new
coastal economic zones.
- AMRUT: Project to improve the urban living landscapes
- Smart Cities: A $15 billion project to develop 100 smart cities and modernize the existing cities
Apart from this, the government is determined on utilizing its strategic location with a 7500 km long coast
line, and is also working towards urbanizing its roads and highway networks along with developing a freight
corridor for railways.

The above-mentioned policies and movements are intended to attract investment in the country by realizing
the potential of each sector of the economy and would also help in generating employment for the masses.
The reforms have immense potential to help boost the dwindling sectors of the economy and lead India on
its way to becoming a global hub for investment.
The reforms, coupled with the Self-Reliant Movement and the Make in India movement act as a silver lining
for foreign investors in India’s post COVID economy. The efforts made by the Indian government are a way
of ensuring that the emerging market does not go unnoticed by the investors.

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Conclusion

India has shown that since 1991, it has a very clear motive to invite investments and promote the growth of
our country. Over the years, various reforms, initiatives and amendments have been issued to offer a hassle-
free investment experience. These reforms have facilitated the growth of our economy by increasing FDI
drastically over the past few decades.

India’s forward-looking stance on FDI, Industrial, Infrastructure and Manufacturing Policy Framework
shows their readiness to make necessary changes and make the country an attractive destination for
investment. Despite of Covid-19, India continues to stay strong in its pursuit of sustainable economic growth
aided by FDI. Though there are few shortcomings in the FDI policies, frameworks and their implementation,
the government of India is working in the right direction to iron out these wrinkles. Currently India is the
second largest emerging market economy in the world, but as the country embarks on its journey to become
a developed nation, it needs to introduce better systems to track its policies implementation and periodically
introduce more measures to attract sustainable FDI in the country.
Overall, the current economic scenario, FDI regulations, business promotion schemes and policies of India
suggest that the country is willing to go the distance to attract foreign capital and sustain its growth, while
protecting the interests of domestic producers and businesses.

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Exhibits
Exhibit 1 – Labor, Capital, TFP & GDP Trends over the years

Exhibit 2 – Unemployment rate affected due to Covid

Exhibit 3 – Inflation rate over the years

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Exhibit 4 – India’s deficit Trends

Exhibit 5 – Fact sheet on Special Economic Zones

Exhibit 6 – FDI Inflows from 2005-2006 to 2020-2021

Group 8 Page 14
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