Factors Driving Growth

Last updated: April 16, 2021

By allowing 100 per cent FDI in core areas such as manufacturing, technology, defence manufacturing, automotive, financial services, retail, and urban development, to name just a few, India has witnessed a record inflow of foreign investments and partnerships.

It comes as no surprise that the total FDI Equity inflow into India jumped by 40 per cent during April – December 2020 as compared to the same period in the previous year. Companies such as Google, Microsoft, Amazon, Facebook, Samsung, Coca Cola, Pepsi, Nestle, Sony, Ford, Procter & Gamble, Toyota, and over 3,200 other MNCs have registered profits through their engagement with India. India-foreign partnerships have steadily improved from diverse manufacturing works to complex and high-value R&D and innovation. This has strengthened India’s position in the global value chain.

  • Infrastructure – The infrastructure sector, which includes power, highways, ports, bridges, dams, roads, and urban infrastructure development, is a key driver of an economy. Hence, the Indian government has prioritised the sector in terms of investment and policies. The ongoing activities across the sector, with increasing foreign participation, will enable the industry to be more efficient.
  • Financial Services – India’s financial sector, including banks, insurance companies, non-banking financial companies, co-operatives, pension funds, and mutual funds, is undergoing a rapid transformation. The sector has steadily been securing its operations through digitisation and improved regulations while the Government has stepped up its efforts to enlist more citizens into the banking system.
  • Technology – India is the world’s largest supplier of services to the global information technology (IT) industry. The sector attracts the majority of the young population and employs a workforce of over 10 million. The cost-effective and highly efficient industry has led to the economic transformation of the country and altered India’s image in the global arena. The Indian IT sector is also coming to the forefront of technology innovation around AI, IoT, automation, etc. 
  • Automotive – The Indian auto industry, one of the largest in the world, accounts for around 7 per cent of the national Gross Domestic Product (GDP). Rising affordability, improved innovation, and increasing foreign entrants will drive growth in the industry. The Government’s decision to encourage electric mobility will pit the nation as a leader of the global auto market. However, the industry already witnessed a slowdown during the year 2019-20, and with Q1 of 2020-21 almost wiped out due to COVID-19 pandemic, the industry fears further setbacks during the current year with 45 – 50 per cent capacity utilization. 
  • Healthcare – India’s fast-growing healthcare industry, comprising of hospital operators, drugmakers, medical device makers, health insurance companies as well as services and equipment providers, has become a prominent revenue and employment generator. Increased investments from private and foreign players have targeted a growing medical services market in India, including medical tourism.
  • Retail – India’s retail sector has been fast-expanding, and beyond the largest economic centres. Attracted by the rising affordability and improved awareness of Indian consumers, the sector has seen some of the biggest foreign investments. Be it e-commerce or physical retail, new players are lining up to tap the opportunities. 
  • Agriculture – Agriculture accounts for 54.6 per cent of the total workforce in India and contributes about 18 per cent of the country’s GDP. Being among the largest producers of agricultural produce in the world, the sector offers huge potential for processing and value addition, to cater to domestic as well as export markets.

A diverse and young demographic has helped India to emerge as one of the most lucrative markets for investment. India’s 1.35 billion population – 18 per cent of the world – makes her the second-largest market after China. What sets India apart is that the country will continue to hold the largest share of the world’s youth population for the next 20 years.

By 2030, India will have a talent surplus of more than 245 million people with skills in diverse areas such as Technology, Construction, Medical services, Banking services, Manufacturing, Transportation, Tourism, and Entrepreneurship. The government of India’s Skill India programme will play an important role in building these skills and creating a ready-to-onboard workforce. Besides offering a large base of skilled manpower, India’s robust and widely respected higher education system (undergraduate level and above) turns out qualified and trained personnel available for employment. The total enrolment in higher education institutions in India was 34.7 million in 2018-19. According to a study by CII and other industry bodies, there was an improvement in the availability of employable talent at around 47 percent in 2019, up from 34 percent in 2014.

India is the seventh-largest country in the world in terms of area. The country’s diverse landscape and its treasures, including flora and fauna as well as agricultural, hydrocarbon, and rich mineral resources, offer endless possibilities for investors. Bordered by seas on three sides, India lies on crucial sea trade routes that drive the country’s 90 per cent international trade by volume.

India’s location in the fast-growing Southeast Asian region, with access to Eurasian and Afro-Asian sea-trade routes, has created attractive opportunities for foreign investors.

Favourable policies and regulations, stable political structure, an independent judiciary, a youth-driven economy, an industrious talent pool, indigenous entrepreneurship, and a market attracting record foreign institutional investors make India a great place for trade and commerce. This is further encouraged by initiatives, such as Make in India, Digital India, Start-Up India, and Skill India.

India has a huge domestic market of 1.35 billion people whose purchasing power has steadily increased. Indicators such as car sales, retail lending, and goods imports, show a strong rise in consumer spending. Economic growth, expanding urbanisation and a growing middle class has been attractive magnets for investment. Although there has been a significant dip in demand in recent months due to COVID-19 pandemic, the Government of India is taking a number of steps to spur the demand.

A stimulus package of Rs.29.87 trillion has been announced by the Government (equivalent to around 15 per cent of India’s GDP), to aid the sections of the society’s worst hit by the pandemic and open up new avenues of trade and investment in the post-COVID-19 economy.

Recognised as one of the IT capitals of the world, India’s innovative, low-cost and high-quality engineering and scientific talent draw a number of foreign enterprises to set up their research and development centres here. Over the years, the country has consistently displayed its capabilities to become the hub of disruptive innovations for the world. A number of India-developed applications and solutions related to fields spanning agriculture to space sciences stand testimony to this fact.

India was ranked 48th among 131 countries, on the Global Innovation Index (GII) in 2020, a ranking of countries as per their success and capacity in innovation, published yearly by the World Intellectual Property Organization (WIPO). This is the second successive year when India has moved up on the GII ranking, from 52nd in 2019 and 57th in 2018.

Demographics and macro stability are India’s key strengths according to economic experts who are viewing the country as among the world’s most desired investment destinations. India is moving towards becoming one of the world’s top three growth economies and amongst the top three manufacturing destinations, even in the post-COVID-19 scenario. A skilled workforce, strong consumerist trends, technical and knowledge-based capabilities and formulation, implementation, and management of development initiatives in the agriculture, infrastructure, information technology, and industrial sectors have contributed to a visible economic upswing.

Demographic Dividend 

  • Window of demographic dividend opportunity available  till 2055 – longer than any other country 
  • India has a large English speaking population, which is useful for business purposes in a globally connected world 
  • In 2018-19: US$478.87 million was allocated for Skilling India. 
  • By 2030: Average age of India’s workforce will be 32 years 
  • 2030: India projected to have a skilled labour surplus of 245 million workers -Talent surplus in financial services, technology, media, telecommunications and manufacturing 
  • 2030: Only 5% of India’s population will be poor
  • 2030: 51% of Indian households will earn over US$8,500 per annum