India slips 3 notches on AT Kearney FDI index

India’s ranking fell three places to 11th spot in global consultants AT Kearney’s Foreign Direct Investment (FDI) Confidence Index 2018. This is an annual survey which tracks the impact of likely political, economic and regulatory changes on the FDI preferences of chief executive officers and chief financial officers.

Last year, India was ranked eighth. Its position was pushed out of the top 10 for the first time since 2015. Switzerland and Italy entered the top 10 for the first time in more than a decade, edging out India and Singapore. The report said one factor for the fall could be the coming elections in India, as investors are likely to be monitoring political risks. China also fell two positions below, to fifth rank.

However, the report says the sheer size of the Chinese and Indian markets will continue to attract investors and they remain the highest-ranking among emerging markets on the index.

Investors based in the Americas and in the industry sector rank India the highest in terms of intention to invest there. This confidence could be a result of the government’s ‘Make in India’ initiative, which aims to boost investment in India’s manufacturing sector, as well as its pursuit of closer ties with the US, according to the report.

It said positive reforms, which made it for a favourable destination for foreign investment, include abolition of the Foreign Investment Promotion Board (FIPB) last year. FIPB was a government agency responsible for reviewing all potential foreign investment. The liberalisation of foreign investment thresholds for the retail, aviation, and biomedical sectors is another factor. “We are in a very exciting space of growth, opportunity and transformation. For long India has been a very exciting destination for investors. Now, especially with the current political stability and positive reforms, India will only gain attractiveness as an investment destination,” said Vikas Kaushal, managing director and country head, AT Kearney India. It said the International Monetary Fund projects India’s economy is growing by 7.4 per cent in 2018-19, the fastest by any major economy. Inward FDI flows increased to an estimated $45 billion (around ~3 trillion) in 2017, a record high.

Japan, the US, the UK, and Singapore consistently serve as large sources of FDI for India. The country’s service sector is a target of particular interest for investors, with the government’s Economic Survey 2017–2018 noting FDI to the service sector will grow by 15 per cent from 2017 to 2018.