Apathy of Domestic Investors and India’s economic growth

Unabated outflow of foreign direct investment (FDI) over the past five months is posing a serious challenge to India’s economic growth. Unfortunately, the trend is expected to continue if the ongoing turmoil in West Asia is not resolved at the earliest, and it will ultimately disrupt India’s ambitious mission to become a developed nation by 2047. Although some economists have pointed out several factors responsible for the continued outflow of foreign capital, the current situation demands the country to look for different strategies to attract foreign investors, not only by framing pro-investment policies, but also by earning their trust, which is an essential prerequisite. Amidst the prevailing uncertainties in various parts of the world, India may find it difficult to meet the challenge of pulling the net FDI out of the red line, but it is not impossible either.

Not long ago, the Indian economy bounced back from an absolute hapless position, after it contracted by nearly 25 per cent due to the COVID-19 pandemic. It is astonishing to note that India has not only managed to come out of the situation but also emerged as the world’s fastest growing economy. Also, Indian economy was tipped to register nearly eight per cent growth rate during the current fiscal before the West Asia conflict put tremendous pressure on the rupee with the energy import bill rising fast. Now, the million dollar question is why India has ceased to be the favourite destination for foreign investors? There may be many reasons, from poor infrastructure to work ethics. But the chief reason, according to many, is the apathy shown by the Indian investors regarding investments in the domestic market.

It is strange that despite India becoming one of the fastest-growing economies in the world and successfully addressing numerous challenges, as well as consistently providing incentives to private investors, domestic investors have not shown interest in investing in the country. They choose to invest in foreign countries that are promising risk-free higher returns, forgetting their role in nation building. This has created a negative perception among the foreign investors, contributing to a trend of withdrawing investment. To address this issue, India should stop providing incentives for domestic investors who refuse to invest in the country. Additionally, measures should be taken to prevent free-fall of the rupee in the wake of the war, while also making necessary adjustments to ensure tax competitiveness and address the overvaluation of stocks.