India’s post-pandemic reforms and the growing size of the country’s consumer market are attracting companies from around the world, including the United States and Europe, according to David Lynne, head of corporate banking at the Deutsche Bank.

“India’s post-Covid initiatives are substantial. India’s size and initiatives make it increasingly attractive for businesses despite some complexities. India’s growth story is distinctive, balancing economic reform with a vibrant democratic framework,” said Lynne. Mint in an interview. “Unlike China’s industrial park model, India’s development is more decentralized. However, its potential remains evident and it is on the way to becoming the third largest economy in the world.”

The trend started earlier but accelerated post-Covid, he said. “First, labor costs in China have risen as its wealth has increased. Second, trade barriers were already increasing before the pandemic. Finally, Covid has highlighted the risks of relying on a single global supply chain,” he said. “Many multinationals now produce in China, largely for the Chinese market itself, which was less common twenty years ago. »

In India, sectors that show considerable potential are advanced manufacturing, heavy industry and chemicals, he said.

As the world began looking for an alternative to China post-pandemic, India announced several post-pandemic reforms to attract foreign investment. This included a program of production-linked incentives across all sectors, including chemicals and semiconductors to drones.

The PLI scheme, according to government calculations, generated a net present value (GST + direct taxes – incentives) of ₹2 lakh. The total projected sales under the PLI programs have been approximately ₹35,000 crore, a large part of which comes from the domestic market. Other reforms focused on digital economy, bankruptcy, creation of infrastructure, besides reducing red tape to improve the ease of doing business in India.

“While I am not an expert on the PLI, the objective of the program to attract investment is clear and it has resonated with global investors. India has seen significant growth over the past decade. The digital economy, improved bankruptcy laws and logistics improvements illustrate India’s growth,” said Lynne. “In addition, India’s large consumer market is now a considerable factor, as evidenced by sectors such as entertainment and adoption of premium products.”

The country is seeing a lot of inbound movement from Europe and the United States, and growing domestic demand has contributed to that, he said.

Lynne said around 20% of Deutsche Bank’s global staff and much of their corporate and investment banking operational support comes from India and the market is vital to them.

This interest is visible in India’s FDI flows, which increased 20-fold between 2000-01 and 2023-24.

According to the Ministry for Promotion of Industry and Internal Trade, India’s cumulative FDI inflows stood at $695.04 billion between April 2000 and June 2024, mainly due to the government’s efforts to improve ease of doing business and easing FDI norms. The total FDI inflow into India from April 2024 to June 2024 was $22.5 billion and the equity inflow for the same period was $16.2 billion.

The inflow of FDI into the country is expected to continue its growth trend, the India Brand Equity Foundation (IBEF), a government-backed information provider, said in a report.

According to the World Investment Report 2023, India was among the top 10 global FDI destinations… and this influx will continue thanks to several reforms implemented by the country. “All these factors could enable India to attract FDI of $120-160 billion per year by 2025,” the report said.

This optimism comes despite a slowdown in inflows in recent years. FDI inflows as a percentage of GDP have also declined steadily over the last three years, from 3.06% in FY21 to 1.99% in FY24.

“Normal relations between India and China are positive”

Last week, Prime Minister Narendra Modi and Chinese President Xi Jinping agreed to strengthen communication and cooperation between their countries and resolve conflicts to help improve relations damaged by a deadly military clash in 2020. The two leaders met on the sidelines of the BRICS summit. in Russia for their first formal negotiations in five years.

This is expected to boost Chinese investment in India, which the economic study had recommended to finance the country’s growth.

“We believe that closer economic ties between India and China could provide mutual benefits. Across Asia, changes in supply chains are shifting production to other countries like Vietnam, Thailand and Indonesia. India stands to gain by increasing its role in these supply chains. It’s a mutually beneficial relationship,” Lynne said.

“India offers a large and growing market, while China remains a significant consumer powerhouse. German companies, for example, have invested heavily in China,” he said. “India can expect benefits from increased inward investment, which, in turn, would boost economic growth. »