86. Strategic review of the foreign investment pattern in India in 2019-20


Foreign investments are extremely crucial to drive growth in an economy. India is the fifth largest economy in the world and has the third highest GDP in Asia. The Indian market offers huge prospects of growth across sectors and is an appealing investment destination for Investors overseas. The foreign investment industry in India witnessed a healthy growth over the years and has garnered significant benefits for the foreign investors.
After the slowdown of foreign investments to a decade’s low in 2018-19, the industry finally picked up pace and has shown positive signs for the economy. The United Nations Conference on Trade and Development (UNCTAD) recently announced that India was among the top 10 recipients of Foreign Direct Investment (FDI) in 2019, attracting $49 billion in inflows, a 16% increase from the previous year, driving the FDI growth in South Asia. The majority went into services industries, including information technology. The growth proved that despite a slowdown in the global economy, inflows of foreign investment in the country remained strong. Due to political stability, a growing middle-class income and reforms, areas such as infrastructure, energy, and real estate have gained huge appetite for foreign funding.
Recently, India has captured the investor’s attention for sovereign wealth and pension funds. From airports to real estate to renewable energy, sovereign wealth funds are buying stakes in almost everything.
Another major reason for India gaining interest from sovereign funds is due to the rising concerns over trade relations between China and the United State of America. A recent media report highlighted that foreign institutional investor flows into Indian equities were $14.5 billion in 2019, the highest in the last five years.
The recent Budget announcement for the financial year 2020-21 also addressed investor’s expectations which can bring an increase in inflow of foreign investment. Following are some prominent takeaways from the Budget 2020 for the foreign investment industry:
·         The elimination of the dividend distribution tax can fuel foreign investment.The proposal will help companies and foreign investors pay reduced taxes. This will also enable the investors to claim credit in their countries for all taxes paid in India
·         The increase in investment limit for FPI in corporate bonds from 9% to 15%. This relaxation in FPI norm can boost investor confidence and lead to increase in foreign investment in the country
·         100% tax exemptions for sovereign wealth funds which can give a much needed investment boost to the Indian infrastructure sector
A healthy growth in foreign inflows helps maintain the balance of payments and the value of rupees. India would require huge investments in the coming years to overhaul its infrastructure sector to boost growth. The consistent performance of the sector fueled by the government measurements has created a sustainable investment environment in the country.

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