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India is among the most favoured FDI destinations and the annual FDI inflows to the country are expected to rise to around $75 billion over the next five years, says a UBS report.
Some moderation was seen in FDI flows in the December 2017 quarter, but it will likely normalise over the coming quarters, the report authored by Tanvee Gupta Jain and Edward Teather (Economists, UBS Investment Bank) noted.
"We expect annual FDI inflows to India to rise further to around $75 billion over the next five years. We believe India will be increasingly recognised as a favoured FDI destination if growth is accompanied by continued structural reforms," UBS said in a research note.
The report further noted that India needs to focus on attracting stable FDI flows to improve the competitiveness of its manufacturing sector and to make it an integral part of the global value chain.
"We believe the transfer of technical and organisational knowledge that accompanies these flows will help boost productivity, support investment and contribute to India's growth, under the right conditions," the report noted.
According to a UBS Evidence Lab survey of US C-Suite corporate leaders in October and November 2017, India remains an attractive investment destination as over a quarter of larger companies expressed an intention to invest in India.
The report further noted that while India has been undertaking reforms to attract higher FDI flows, the overall magnitude of these flows though improving is still way below potential.
"Domestic challenges including inadequate infrastructure spending, a restrictive regulatory regime, strict labour laws and other supply-side bottlenecks have constrained the positive externality and productive spillover impact of these flows," the report noted.