India has emerged as the most preferred and attractive investment destination globally. Not just in terms of investment, but international partners have been attracted to the country due to the ease of doing business offered by the current government.

India has been one of the fastest emerging economies in the world which not only sustained the global downturn of 2008-2009, however, also grew consistently at higher rates during the succeeding decade. Multinational corporations are investing more in new projects in India, than the domestic companies.

Foreign direct investments (FDI) have played a gigantic role, which alone accounted for US$ 13 Billion worth non-bank funds that financed businesses in India during April-July 2018, according to RBI data. IPOs, private placements and subscription to commercial papers together accounted for US$ 96 million or 26% of the non-bank funds flow during the period.

According to a market research report released last year, the domestic consumption is also set to treble to US$4 trillion by 2025 as rising affluence levels drive changes in consumer behavior and spending patterns that have big implications for companies. About 40 percent of the population would be living in urban areas by 2025, and city dwellers would account for over 60 per cent of consumption, it said.

Why has India become the favourite investment destination for European MNC over the years?

India’s middle class is rising while it reflects the contrary in European countries, leading to stagnation of the middle-income groups in leading economies. This is attributed either due to households falling below the middle-class threshold or others escaping and becoming rich. In the developed countries of Europe, the middle class is large but stagnating in numbers. In fact, it is squeezed between the two ends, growing even slower than overall population growth.

Today, it is thus not just the underdeveloped countries, which need foreign capital for economic development, but even the advanced countries of Europe are seeking external aid in the initial stages of their business development. China may be the world’s largest emerging economy, however, India is beating China in an indicator that matters the most to emerging market investing; which is ‘financial market development.’ In brief, this means that India is less prone to any financial crisis as against China and this makes India a better investment destination than her neighbour.

India Inc. is increasing its engagement with the world by entering markets abroad or acquiring assets and therefore, public perceptions and trust in Indian companies have been playing a crucial role in ensuring the success of domestic operations. Edelman Trust Barometer, compiled by Edelman, a leading global communications marketing firm projected approximately 44 per cent of the public showing trust in Indian business growth potential as compared to 36 percent who voted in favour of China in 2018. As per the study, 50 percent of people between 8-34 years of age believed that Indian companies had significantly improved over the past few years while people between 35-54 age voted 47 per cent in favour of India.

Other reasons that make India a magnet for investments Vs China by European companies:

  • Indian Government’s constant evolving investor friendly policies.
  • Lower cost of production due to lower labour rates.
  • Availability of skilled manpower, at far cheaper costs compared to Europe.
  • Natural resources found in abundance.
  • English is spoken fluently as one of the major business languages – a critical aspect which is missing from other south Asian countries, especially China.
  • The strategic and geographic positioning of India surrounded by South East Asia, Middle East and also it’s close proximity to Europe.
  • As per projections made by internationally renowned consultants and IMF, India is likely to surpass China and become the largest economy of the world by the year 2025.
  • Thus, businesses around the world and particularly from Europe would not want to miss the growth opportunity curve offered by the Indian markets today. 
  • China’s debt as a percentage of GDP currently stands at 235% and the IMF estimates that this will rise to 300% by 2022.
  • Quality of products is less of an issue for India compared to Chinese productions.
  • European markets are looking at India as a manufacturing hub, recreating what they have already done in China and also developing an alternative against the monopoly of the Chinese.

Source: Tecnova