India celebrated for its status as the world's fastest-growing major economy in recent years, finds itself struggling with a crucial challenge, securing a consistent flow of foreign investment.
Economists point to a lack of steady and sustainable policies from New Delhi as a primary deterrent, unsettling prospective investors.
According to insights shared by Raghuram Rajan, former Reserve Bank of India governor, and Surjit Bhalla, former part-time member of Prime Minister Narendra Modi’s Economic Advisory Council, uncertainties surrounding policy decisions have escalated, significantly hampering foreign investment inflows.
"Businesses are worried about the government changing the terms on them, about them privileging the tax authority to raise demands all the time. Eventually, these demands get thrown out of courts, but it is five or ten years of uncertainty," Rajan remarked.
The data reinforces this sentiment. Net FDI flow into India surged from $22 billion in FY14 to $31 billion in FY19. A significant downturn occurred, with figures plummeting to $13 billion in April-September 2023, down from $38 billion in the corresponding period the previous year, as outlined in a note by HSBC earlier this year.
Bhalla stated,"I think our tax rates are too high. Be it income tax rates, or direct income tax rates, they are too high."
Both economists raised concerns about the unpredictability of tariff policies, which are frequently announced and then revoked, causing uncertainty for both foreign and domestic companies.
Another point of contention was India's abrupt announcement of compulsory licensing requirements for tech importers in 2023, swiftly followed by a retraction.
"One day I wake up and say this tariff is going to go up and then another day I say something else. That kind of change of terms on which they came in is something that foreign investors worry about as it can make their economics unpredictable," Rajan explained.
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