Does India really need foreign investment
With investments for more economic independence
India wants to reduce its imports and strengthen manufacturing in the country. The corona crisis has meanwhile taken a heavy toll on the economy.
The corona pandemic has hit India's economy hard. In the 2nd quarter of 2020 in particular, economic activities were almost completely idle due to a hard lockdown. This had drastic consequences for the economy.
Severe economic downturn in 2020
For 2020 as a whole, the Asian Development Bank (ADB) predicts a real decline in gross domestic product (GDP) of 9 percent. For 2021, however, the ADB already expects a recovery with economic growth of 8 percent.
A forecast by the rating agency CRISIL also assumes a minus of 9 percent for GDP, but for the current financial year 2020/21 (April 1 to March 31) and on the assumption that the infection rate as part of the pandemic in September / October 2020 reached its peak. For the financial year 2021/22, the analysts of CRISIL expect strong economic growth of 10 percent, and in the three following financial years, GDP is expected to grow by an average of 6.2 percent.
Reforms to encourage investment
Despite the economic situation, the government under Prime Minister Narendra Modi is continuing its reform course. In addition to innovations in the agricultural sector, the modernization of important labor laws has recently been tackled. Last but not least, India hopes that this will make it more attractive to foreign investors.
The country with its around 1.4 billion inhabitants, the majority of whom are young and keen to spend, is trying to position itself as an alternative production location to China. It strives for a deeper integration into international supply chains. According to the SWOT analysis, the broad industrial base on the one hand and the western-oriented legal system on the other are good prerequisites for this. In an international comparison, wage and ancillary wage costs are also considered attractive. However, the sometimes insufficiently developed infrastructure and international trade conflicts are obstacles on the way there.
The prices for renting commercial property have remained largely constant since 2016 in the wake of an economic slowdown.
Average Monthly Commercial Real Estate Rents in Selected Cities in India; in euros (Indian rupees) per square foot *)
Rent for office space in Delhi (National Capital Region)
Rent for office space in Mumbai
Rent for office space in Chennai
Rent for office space in Kolkata
Rent for office space in Pune
Rent for office space in Bengaluru
Rent for office space in Hyderabad
India wants to become less dependent on imports
India would like to be more closely integrated into international supply chains and position itself as an alternative manufacturing location to countries such as China. For years the subcontinent has been importing more from the world than it exports. In particular, India is trying to loosen its economic ties with China and import less from the Middle Kingdom - especially in the wake of political tensions.
The government wants to counteract the trade deficit more intensively overall. However, the country does not yet have the necessary know-how and is therefore dependent on international investors. Ideally, these will not only produce for India (Make in India), but also use the location as an export hub(Make in India for the world).
Not only should new and high-quality goods be manufactured, the necessary preliminary products should also come from India. In the course of the adoption of an economic stimulus package to combat the economic consequences of the corona crisis, Prime Minister Modi spoke of an economically independent India for the first time in early 2020 (Atmanirbhar Bharat).
Foreign direct investment in 2019/20 with record value
India is gaining importance again as an investment location. Increasing inflows of funds have been reported for several years. A record inflow of around 50 billion US dollars (US $) of foreign direct investment (FDI) was posted for the 2019/20 financial year.
However, the corona crisis has noticeably reduced investment activity. FDI for the first quarter of fiscal 2020/21 was $ 6.56 billion. This was a drop of 60 percent compared to the same period in the previous year. In the course of the year, the numbers should recover somewhat.
Foreign direct investment in India (in million US dollars)
Traditionally, the services sector in India has attracted most of the foreign direct investment. In 2019/20 it was over 50 percent of the total FDI. Banking, finance and insurance, activities related to research and development, technical tests and analyzes as well as outsourcing services together made up 16 percent. Software and hardware alone made up 15 percent, telecommunications and retail 9 percent each. The hotel and restaurant industry and the automotive industry each came in at 6 percent, and the construction industry at 5 percent.
Germany remains an important investor
According to Indian statistics, FDI totaled US $ 488 million in the 2019/20 financial year (FDI equity inflows) from Germany to India. This put Germany in tenth place among the most important investors. The first three places went to Singapore (US $ 14.7 billion), Mauritius (US $ 8.2 billion) and the Netherlands (6.5 billion). From April 2000 to June 2020, around US $ 12.2 billion in FDI flowed from Germany to India.
German direct investment in India (in million euros)
Net transfer *)
In the 2020/21 financial year from April to June 2020, FDI in the amount of US $ 43 million from Germany were reported by the Indian authorities.
Selected major German investments in India (as of September 2020)
Volume in million euros *)
Shoe and leather industry
Investment protection agreement is a long time coming
India wants to continue to attract capital, but in 2016 it repealed the investment protection agreement with Germany. Hope for a modern set of rules on a large scale germinated in 2007 with negotiations on an investment and trade agreement (Broad-based Trade and Investment Agreement) between the European Union and India. However, these have been inactive since 2013. They have recently been back on the agenda.
By Florian Wenke | Bonn
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