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India’s economic landscape of a country depends upon several internal as well as external factors. No country can is immune from the events taking place across the globe. In one way or the other, the events impact the economic landscape of the country. Historical events such as the two world wars, the great depression, the cold war, the global pandemic, Russia-Ukraine War have had their effect on the Indian economy. However, the Indian government is taking appropriate measures to minimize the effects of any such events.
Currently, the world is on the verge of a global recession. Amid this unprecedented situation in the global economic and geopolitical landscape unfolding across the advanced market economies, India is emerging as one of the hot spots for foreign investments. India bags itself a position as one of the fastest growing economies across the globe. Even in this situation, India is outperforming its peers and ranked as the best-performing equity market across the globe in 2022. India also emerged steadily from the pandemic as compared to other major economies in the world. Due to this, India’s Economic Landscape becomes favourable for foreign investors. Let’s have a look at the Opportunities and Challenges arising for foreign investors from India’s economic landscape.
Table of Contents
The Indian government has taken several steps to ease doing business in India and to attract foreign investments in India. Let’s look at some of the favourable policies which serve as an opportunity for foreign investors in India.
The Indian Government has relaxed several FDI norms across sectors like the defence, PSUs, oil refineries, stock exchanges, telecom, etc. Furthermore, the Indian government is continuously involved in boosting investments, streamlining the tax regime, liberalizing the FDI policies, and encouraging technological innovations.
In the year 2020, India amended its FDI Policy and introduced a mandate to obtain prior approval from the government in all activities originating from neighboring countries such as Pakistan, Afghanistan, China, Bangladesh, Bhutan, Nepal and Myanmar. This mandate aims to protect opportunistic and hostile takeovers or acquisitions of Indian companies.
In the year 2020, the Indian government made the following amendment to its FDI Policy:
Private consumption and capital formation has led to the generation of employment resulting in a decline in the urban unemployment rate. Moreover, registration to the Employee Provident Fund has become faster. In addition, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)[1] is continuously involved in providing jobs in rural areas and creating opportunities for rural households to diversify their source of income.
During the surge of Covid-19, India witnessed limited health and economic fallout as compared to the rest of the world. This implies that there was no break in the supply chain. Furthermore, at present Indian economy appears to have moved on from the effect of Covid-19 as manufacturing sector has been functioning effectively.
Due to European strife, India faced the challenge of reining inflation. The Indian government along with the RBI took measures and also eased global community prices which resulted in successfully bringing down the retail inflation below the RBI’s upper tolerance target.
To curb inflation, the rates have been hiked by the Central Banks, which has appreciated the value of the US dollar against the Indian rupee. This has resulted in the widening of CAD in importing economies. Even though the Indian rupee is performing better than most of the other currencies, there persists a likelihood of an increase in policy rates by the US Federal bank. So it is expected that the CAD may continue to widen as global commodity prices are expected to remain elevated.
Inflation across the globe, including in India, rose due to the pandemic and the European strife. In January 2022, India’s inflation rate had risen above the RBI’s tolerance range. Post that, the commodity prices were eased, which are still comparatively higher. This has contributed to the widening of the CAD, which was already enlarged by India’s growth momentum.
India was quicker in recovering from the pandemic as compared to other countries. Thereafter, the global geopolitical environment slowed down the growth rate. The global recession is further going to slow down the economy. However, the government has taken sufficient measures to maintain stability in India’s Economic Landscape. Now when the world is moving towards recession, India is expected to be least affected by the recession. This raises the confidence of foreign investors to invest in India. The positive measures taken by the Indian government make it favorable for foreign investors to invest event in such a critical situation.
Read our Article: Foreign Investments from Neighbouring Countries in India
Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.
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