The government's Atmanirbhar Bharat plan's stated goal is to make India "self-reliant" but not "self-centered". Unlike MAGA (Make America Great Again) or America First policies, it distinctly seeks to shy away from being perceived as isolationist. This is indicative of the importance of foreign investments—both resources and knowledge—to India's economy.
Prime Minister Narendra Modi is a regular at industry conventions and conferences with overseas businesses—another indicator of how important they are for India. During one of these events, he set a $100-billion foreign direct investment (FDI) target for the next two years. As per the department for promotion of industry and internal trade (DPIIT), even at the peak of the COVID crisis, India received $30 billion in FDI in the first half of FY21 (from April 2020 to September 2020), up 15 percent from the same period last year.
It is undeniable that India is steadily improving the business environment through tax incentives, labour reforms, and general streamlining of the regulatory regime. However, in the short term, this increase in FDI seems to be driven by a surfeit of liquidity from developed economies. Interest rates have crashed to near zero or even negative territory for most of these markets. So, it should not be surprising that the yield-seeking investors are piling into emerging markets like India.
We must acknowledge the fact that the fate of FDI in the short-term will largely lie in the hands of the central bankers in major economies like the US and EU and the status of their quantitative easing (QE) regimes.