Union Budget 2021 calls for FDI reforms in India

We have read many times that the world is going through an unprecedented era. However, one thing amid this unprecedented era remains the same, that is, India’s growth story and charm as an investment destination. While there were some bumps on our economic growth trajectory in 2020 due to COVID-19, the foreign direct investments (FDI) saw the highest ever influx.

Going by the numbers, FDI into India crossed the $30 billion milestone in the first half of FY 21, with a 15 percent growth over the corresponding period from the last year. The key sectors which attracted these inflows include services, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals and pharmaceuticals, etc.

However, there is much more upside when it comes to FDI inflow. The nation has just about kicked off the biggest ever vaccination drive to eradicate COVID-19. This has given confidence to businesses and global investors about a robust economic recovery. FDI will play an important role in ensuring this recovery and providing the much-needed growth capital to key sectors.

The government has already been working on simplifying and relaxing the FDI as well as overall business norms to encourage global investors. As a result, India ranked 63rd in Doing Business 2020: World Bank Report among 190 countries that were taken into consideration. This essentially means that corporates operating in India have reduced compliance burden and can focus on their core business.

From the FDI point of view, the government has considerably opened up sectors such as defence, coal mining, contract manufacturing, insurance, single-brand retail trading, etc.

At the same time, the government has an eye to ensure that the global investment environment in the country remains fair and safe. Therefore, the foreign investments coming from countries that share land borders with India will have to seek prior approval from relevant regulators and ministries in order to curb “opportunistic takeovers” of domestic firms.

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The Budget 2021 is definitely going to boost foreign investments in India, provided the allocation of budget is favorable to various sectors such as manufacturing, electronics, automobile, etc. It will be imperative to build on forward-looking initiatives through digitalisation, identifying the key areas attracting high investments, uniform and effective policies across the nation.

Another important area that the government may address in the union budget 2021 is the corporate tax structure across industries. Even as Goods and Services Tax (GST) has proven its metal in simplifying the taxation framework, some of the key sectors are burdened because of being considered in the higher taxation slab or mismatch of tax vs input credit.

Taking care of these anomalies will help make Indian businesses even more attractive for foreign investors who are attuned to much friendlier taxation regimes in other markets such as Singapore and the Middle East.

Finally, last year, the government announced production linked incentives (PLIs) for various industries in the manufacturing sector. We can see these incentives to further increase and include many more sectors. This will help India reposition itself from a low value add assembly line to a high-end manufacturing hub.

It is high time for the country to evolve from being considered an ‘Emerging Market’ to the nation whose time has come. By taking the first step towards some big ticket FDI reforms, the government can make the Union Budget 2021 a path breaking moment. It will be fair to say that the country has big hopes from India’s Union Budget 2021.

For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com