 "How FDI can unlock India's consumption economy and power MSME growth")
FDI is a critical enabler for economies, bringing capital and technology together to build capacity. Over the past decade, India has steadily opened its FDI policies in areas such as defence, insurance and single-brand retail. These reforms have attracted record levels of investment and strengthened global confidence in India’s long-term growth. Annual FDI inflows have more than doubled, increasing from around $36 billion in FY14 to over $80 billion in FY24. This progress has placed India among the leading investment destinations in the world.
As India and its international partners develop new trade partnerships, the focus is shifting towards using trade and investment reforms to strengthen competitiveness. Deeper capital flows, better infrastructure and stronger value chains will help India move closer to its goal of becoming a Viksit Bharat. These efforts will expand production, boost exports and create more quality jobs across industries.
How is FDI helping unlock India’s consumption economy?
India’s growing GDP has led to a wave of premiumisation, with consumers increasingly seeking better quality and higher-end products. The rapid expansion of internet and smartphone access across India has significantly widened the online marketplace, while vast e-commerce delivery networks have made a wide range of goods available at nearly uniform prices nationwide. This is fuelling MSME growth, with a large number of them now leveraging e-commerce platforms to reach new customers in rural and semi-urban markets.
In line with this, India’s next economic leap will come not from adding more production capacity alone, but from unlocking the full potential of its consumers. Rising aspirations, digital inclusion and expanding urban and semi-urban demand are quietly reshaping the nation’s growth story. But for this promise to be realised, India needs the connective tissue that allows goods, ideas and opportunities to move efficiently from farms to factories to families.
FDI, when channelled into the right sectors, builds that connective tissue. It funds the warehouses and cold chains that cut waste, the systems that formalise transactions and the digital platforms that bring the small producer and the distant consumer into the same economy.
Digital retail is a key node that functions as the scaffolding of a modern consumption economy. Deeper capital flows into this sector can turn investment into jobs, inclusion and higher productivity. Online platforms have created 15.8 million jobs in India, including 3.5 million for women. They also expand access to insurance and welfare benefits. This gives workers safer and more predictable livelihoods.
How does FDI help MSMEs access new markets and scale capacity?
For MSMEs — almost 1.6 million of whom now sell digitally, leveraging e-commerce and quick commerce platforms such as Flipkart, Amazon, Blinkit and Zepto — digital platforms lower the cost of reaching customers, simplify compliance and expand credit access through digital records. They help small manufacturers find buyers for surplus capacity or excess goods when local demand is weak.
These platforms also support manufacturing growth by linking small producers to national supply chains and export markets, which raises demand benchmarks. In technology-driven ecosystems, MSMEs gain efficiency, scale and quality improvements.
As MSMEs grow through these channels, the economy needs more efficient logistics and distribution networks. This creates a strong ripple effect. India’s logistics industry is valued at nearly $9 billion in FY25 and has grown at an annual rate of 12–15 per cent since FY17, driven by e-commerce and MSME exports. FDI is essential to achieving this scale and sophistication, so domestic capabilities can match global standards. As volumes rise, efficiency improves and unit costs fall, creating a cycle that benefits producers and consumers.
Why is sustaining reform momentum crucial for India’s next growth phase?
India is entering its next phase of economic growth. The priority is to sustain reforms that strengthen competitiveness, attract long-term investment and build domestic capacity.
Simplified investment rules enable more of this inflow to benefit India’s producers and MSMEs. For MSMEs particularly, as cost and complexity fall, more firms enter the formal economy, which helps them innovate, access credit and scale efficiently.
Equally, reforms that expand productive capacity must go hand in hand with those that unlock consumption. India’s vast and increasingly urbanised consumer base is emerging as a central engine of growth. As purchasing power rises and more households move into the consuming class, demand for higher-quality goods and services creates a pull effect across manufacturing, logistics and retail.
FDI serves as a critical enabler here. Continued investment in logistics, including warehousing, transport and cold chain, creates shared infrastructure that serves multiple sectors, from agriculture to manufacturing and pharmaceuticals, while also reducing costs and wastage. These are capital-intensive investments, and easing FDI norms can make the difference here.
Global supply chains are being reconfigured, and India has the scale, digital public infrastructure and entrepreneurial depth to lead the next wave of competitive growth. By keeping the FDI door open, India can power job creation, energise MSMEs, strengthen logistics and build the manufacturing muscle that exports demand. The BTA has the potential to serve as a marker of national intent and a catalyst for Viksit Bharat, with FDI and e-commerce reforms forming the cornerstone of an inclusive, future-ready economy.
(Neelam Dhawan is a veteran technology leader with over 38 years of experience across HCL, IBM, Microsoft, and Hewlett Packard Enterprise. She has served as Managing Director for Microsoft and HP in India and later as Vice President for Global Industries and Strategic Alliances for HPE in Asia Pacific and Japan. Recognized by Fortune, Forbes, and Business Today among the Most Powerful Women in Business, she has played a pivotal role in shaping India’s IT industry and served on the NASSCOM Executive Council from 2009 to 2017.)
(Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)