Economic Survey Calls For Multi-Pronged Strategy To Sustain FDI Amid Global Volatility

The Economic Survey on Thursday called for a multi-pronged strategy to strengthen the country's investment climate by addressing both structural and cyclical factors, noting that the key challenge going forward is sustaining FDI inflows amid heightened global volatility.

It said that the window for action is still open, but it will not remain so indefinitely.

There is a need to move decisively to transform the FDI challenge into the next chapter of the economic growth story, it said.

Despite a clear government intent and proven economic management, FDI inflows remain below their potential, especially for infrastructure needs.

“Proactive reforms are essential to attract more foreign investment,” it said, adding this approach involves developing a targeted strategy that identifies a specific set of GVC (global value chain) anchors and establishes a state apparatus that collaborates directly with them as partners.

The direct engagement will help resolve cross-agency issues and provide customised and time-bound solutions.

Additionally, it is also crucial for India not only to offer compelling incentives but also to ensure these incentives are reliably implemented, it said.

“Establishing a single, empowered centre of accountability will position India as a credible alternative production hub capable of handling large volumes, integrating with global suppliers, meeting regulatory and compliance standards, and, importantly, providing predictability over a multi-year timeframe,” it said.

Creating a task force to engage top global companies and promote India’s advantages — stability, macroeconomic strength, sustained growth and market size — could boost FDI, especially in targeted sectors.

It said proactive diplomacy, highlighting these strengths, can help offset tariff challenges.

It added that India's task to attract FDI (foreign direct investment) is more complex than countries like Vietnam and Malaysia, as it is competing with emerging FDI destinations, which have already been wooing investors with interventions at the prime minister level.

The survey suggested integration of efforts and robust centre-state coordination as it would make large investors believe in the country's intention to host them.

Further, a strategic approach to identifying priority sectors, along with a mix of incentives and reforms, will help prevent the dilution of policy efforts and improve overall effectiveness, it added.

“Going forward, the challenge is to sustain FDI inflows in an environment of heightened global volatility, which underscores the need for a multi-pronged strategy that strengthens the investment climate by addressing both structural and cyclical factors that determine capital flows,” the Survey said.

Companies harvest profits from established operations in India while hesitating to commit fresh capital amid global uncertainty.

“The solution lies in mobilising new investment through policy stability, aggressive investor engagement, and scaling proven state-level models nationwide,” it said.

It also noted that political stability and strong macroeconomic fundamentals are key drivers of FDI and India excels in this area but there is a need to better leverage its strengths.

Further it said as foreign investors prioritise predictability and sustainability in policies, every policy change in the country must pass the necessity test to meet both these parameters.

According to RBI data, in FY25, gross FDI inflows into India stood at $81billion, representing a 13% increase from $71.3billion in FY24.

It said the momentum created by improvements in the investment climate, streamlined regulations, and reduced bureaucratic procedures, thereby enhancing the ease of doing business, must be sustained and accelerated.

“India's credit rating upgrades can be leveraged for additional momentum, as foreign investment and sovereign ratings demonstrate a strong historical correlation globally,” it said, adding the country's continued economic resilience, steadfast commitment to fiscal consolidation, and reform trajectory position it well for unlocking investor interest.

Further, the survey said while it is essential to recognise the role of trade and investment agreements as enablers, there is a pressing need for action across departments and agencies to streamline India’s trade policy and secure a greater role in GVCs.