Birds are flying in sky

How MNCs would drive India’s vision of a developed nation

Photographic portrait of Sudhir Kapadia
Sudhir Kapadia

Partner, EY India Tax & Regulatory Services

4 minute read 27 Oct 2022
Related topics
Tax
Growth

The EY-CII survey reveals that India’s rising investment attractiveness has created many opportunities for MNCs in the short and long term. 

In brief

  • India has the potential to attract FDI flows of US$ 475[2] billion in the next five years.
  • The country may play a significant role in MNCs’ global expansion plans in 3 - 5 years. 
  • EY-CII survey respondents find India attractive as an investment destination and emerging manufacturing hub for global supply chain.

The global environment for international investment is currently witnessing many pressures that are impacting investment flows.  Even as economies were recovering from the pandemic, the geo-political conflict has had a reverberating effect and has resulted in investor uncertainty.  These disruptions are forcing businesses to take a fresh look at the global business landscape and potential fault lines.

In this tumultuous backdrop, it is reassuring to note that multinational investors continue to consider India as a stable partner as well as an attractive investment destination. The CII-EY MNC Survey 2022 seeks to gauge the shape of this perception and level of interest that decision-makers at MNCs have in India. At the same time, the survey points the spotlight on the factors that are attracting investors and what more needs to be done to maintain this momentum.

India has consistently taken steps to improve ease of doing business (EoDB). Now, it is in a position to take a leap forward by leveraging its strengths to enhance its role in the global economy while meeting the aspirations of its large and mostly young population. It has maintained a fast and consistent pace of reforms that has greatly improved the business and investment climate in the country. 

The survey reveals that India has the potential to attract FDI flows of US$ 475 billion in just the next five years. Besides the fact that India is among the fastest growing large economies in the world (OECD), the confidence in India’s potential stems from strong consumption trends, digitization and a growing services sector, along with government’s strong focus on infrastructure and manufacturing. The Indian government’s consistent efforts to reduce regulatory barriers is also stoking the positive perception among MNCs. 

The survey finds that as many as 71% respondents plan to invest in India in the next 3-5 years with almost all (approximately 96%) being optimistic about India’s growth prospects. The country’s thrust on structuring modern Free Trade Agreements (FTAs) to boost trade and create cross-border investment opportunities also finds favor with MNCs, with 82% supporting trade initiatives. 

The bigger attraction, however, is India’s growing domestic consumption base and digital economy. The estimated real growth in consumption is the third highest behind only the US and China[3]. Given that these both are large but relatively saturated markets with relatively lower growth, India is a uniquely placed opportunity for MNCs looking for growth avenues in the coming decade.  

 India’s consumer digital economy is expected to be a US$800[4] billion market in 2030, registering a ~10x growth from 2020. The e-commerce growth has positive implications for MNCs:

  • It is more dynamic than any traditional economy
  • The next phase of growth is coming from small urban and rural areas
  • Digitization is creating a change in the pattern of consumption in India. Growth in e-commerce also means growth in the formal sector 

The survey assesses the industry view on what more should India focus on, to maintain its attractiveness in an uncertain environment marked with new-generation, geo-strategic regional economic agreements. MNCs consider EoDB as their first preference in terms of continuing the ongoing reform exercise. A large majority of businesses laud the government’s consistent efforts for enhancing ease of doing business. Over 60% feel that the business environment has improved for them in last three years. 

How EY can help

Going forward, the survey suggests that government should focus on implementing the infrastructure projects and project preparation timelines, especially for public-private partnership (PPP) projects. Multinational enterprises would like to see the development of competitive business clusters through Development of Enterprises and Services Hub (DESH)  initiative. In order to provide the maximum benefits from this DESH initiative, it is important that structure of decentralized regulations is devised. Continuation of financial sector and power sector reforms would also be important.  Finally, to provide a fillip to India’s efforts to achieve its ESG targets, India needs to develop market-based mechanisms to incentivize decarbonization of its economy.  93% of the survey respondents feel that investment in the Sustainable Development Goals and in climate change mitigation and adaptation is essential.

The time is ripe for India to take the leap to the next level of economic development. Adopting measures such as the ones recommended above will help power this shift.


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Summary

The Indian economy exhibited a growth of about 6.5%[2] over the last pre-pandemic decade, and is poised to enter a similar, if not higher, medium-term growth path. As a result, India is expected to remain the ‘fastest growing major economy’ in the world over the medium-term. 

The key engines of growth such as domestic consumption demand, investment rates and government spending have supported the economy’s successful recovery from the COVID-19 shock. The Indian economy is showing signs of acceleration which will have a positive impact for the regional and global economy as well.

About this article

Photographic portrait of Sudhir Kapadia
Sudhir Kapadia
Partner, EY India Tax & Regulatory Services
Expert on taxation and its impact on the economy. Senior advisor on private equity, financial services, technology and entertainment. Passionate about travelling, swimming and watching movies.
Related topics
Tax
Growth

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