union budget: Budget 2022: Positive ringtones for private and foreign investor participation

On the backdrop of UNCTAD, recent publication on “Global Investment Trends”, Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated $1.65 trillion, from $929 bn in 2020, surpassing their pre-COVID-19 level. The outlook for global FDI in 2022 is positive. Measures taken by the Government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country. The following trends in India’s FDI are an endorsement of its status as a preferred investment destination amongst global investors.

India has attracted highest ever total FDI inflow of US$ 81.72 bn during the financial year FY 2020-21. In terms of top investor countries, Singapore is at the apex with 29%, followed by the USA (23%) and Mauritius (9%) for the FY 2020-21. Computer Software & Hardware has emerged as the top sector during FY 2020-21 with around 44% share of the total FDI Equity inflow followed by Construction (Infrastructure) Activities (13%) and Services Sector (8%) respectively.

Supported by a strong pace of vaccination, India’s GDP growth at 9.2% in 2021-22 is projected to be the highest among all large economies. With India moving up strongly and steadily in the ease of doing business, it gets an edge to attract private & foreign investors. Investor confidence is strong in infrastructure sectors, supported by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes.

Deep reforms like PM GatiShakti, a National Master Plan for Multi Modal Connectivity, essentially a digital platform to bring 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects will surely attract foreign investors. GatiShakti aims to address the past issues through institutionalizing holistic planning for stakeholders for major infrastructure projects. It will incorporate the infrastructure schemes of various Ministries and State Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc. Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, Agri-zones will be covered to improve connectivity and make Indian businesses more competitive.

Under PM’s Gati Shakti scheme, USD 26 bn production linked opportunity has been created, hence enabling successful partnerships and ventures with private & foreign Investors to increase liquidity in India and offer a positive return on investment.

The FM in her speech indicated with a view to promote exports, it is proposed to replace the Special Economic Zones Act with a new legislation that will enable the states to become partners in ‘Development of Enterprise and Service Hubs’. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.

This positive move recognises that SEZ exports increased from US$3 bn in 2005-06 to US$102 bn in 2020-21. Investment in SEZs increased from US$0.54 bn in 2005-06 to US$83 billion by 2020-21 and importantly has provided jobs to overall 2,358,136 persons till 2020-21. With nearly 40% of approved SEZ’s yet to become operational, this will surely be a booster dose for the stakeholders to invest, export and generate employment.

In a bid to boost the Data Centres and Energy Storage Systems including dense charging infrastructure and grid-scale battery systems in the country, the Government has granted it infrastructure status. Grant of status is a positive move by the Government and is an acknowledgement of the growing dependency of the success of technology enabled sectors on Data Centres. This would help build world class Data centre ecosystem by attracting investments from domestic and global players and would nurture localisation of Data centre industry. Data Centre companies would henceforth be enabled to access funds at a cheaper rate and consequently benefit the economy in the long run.

It is proposed to open Defence R&D for industry, start-ups and academia with 25 per cent of defence R&D budget earmarked. Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organizations through SPV model. An independent nodal umbrella body will be set up for meeting wide ranging testing and certification requirements. This will open new markets for private players.

The FM in her budget speech recognised the Sunrise Opportunities like Artificial Intelligence, Geospatial Systems and Drones, Semiconductor and its eco-system, Space Economy, Genomics and Pharmaceuticals, Green Energy, and Clean Mobility Systems, which have immense potential to assist sustainable development and modernize the country.

The proposed policy initiatives by the FM, coupled with factors like attractive Indian markets, presence of skilled workforce, stable political environment will surely be viewed positively by the investors, thereby making India an favourable destination for investment in India.

The author is Partner, Tax and Regulatory Services, EY India.