In a speech given by Prime Minister Modi today (22/07/2020), he discussed the immense opportunities present in Indian markets. He specifically mentioned several sectors: medical, aviation, manufacturing (in line with Aatma Nirbhar Bharat), operation and overhaul facilities for aviation in India, defense (74% FDI), and the finance and insurance sector with 100% FDI.
The sectors that have been opened up for FDI investments are typically resilient during economic fluctuations. In recent years, India has been working to establish its own aviation testing and overhaul facilities, which will reduce its reliance on countries like the USA and Israel. By creating local facilities for overhauling and servicing aircraft, India stands to gain in three crucial ways. First, it promotes local industry, enhancing the Aatma Nirbhar Bharat initiative; second, it generates employment opportunities for many Indians; and finally, it provides an economical alternative for foreign defense and civil aviation aircraft seeking services. The plan to position India as an international hub for aircraft services has been in the works since around May 16, 2020 (Business Today), making the call for local overhaul facilities neither new nor surprising.
The selections of these sectors for FDI are not arbitrary; they are well-researched and aligned with the current needs of the nation. The medical system requires significant improvements, and given the strengths of our existing system, it has become essential for new investments to elevate our healthcare capabilities. Hence, Prime Minister Modi included the medical sector in his announcement, which is generally viewed as a positive move, despite potential drawbacks that will be discussed on another occasion.
Manufacturing Facilities
Owing to the Aatma Nirbhar Bharat initiative, India is also planning to expand its manufacturing capabilities, aiming to become a central hub for global manufacturing while increasing exports. This strategy will boost employment, generate revenue for the Indian government, and attract investors due to competitive labor costs. By doing so, the current administration can confidently claim progress in fulfilling its promise to create jobs for the country’s youth. Additionally, the successful implementation of Aatma Nirbhar Bharat demonstrates a forward-thinking approach, making it a win-win for the Prime Minister and the nation.
Finance and Insurance Sector
The choice of opening up the finance and insurance sector for FDI also makes sense. In light of the pandemic, the need for insurance has grown, alongside potential demands for financing as individuals seek to establish new businesses or make significant purchases such as cars or homes. As lockdown restrictions are gradually lifted, various sectors will likely experience increased demand; however, the timeline for complete normalization remains uncertain. We have already seen a trend in travel loans, where people borrow to travel abroad (Economic Times, 6 Dec 2019), despite concerns from economists about the potential risks of such debt. This emerging market presents a valuable opportunity for foreign investors.
Services Sector
India has the potential to become a global technical hub, as approximately 1.9 million students complete vocational skill enhancement training each year, including those from ITIs and other vocational courses. The launch of the Pradhan Mantri Kaushal Vikas Yojana has expanded access to skill enhancement centers, enabling graduates and interested individuals to acquire training at a minimal cost, ultimately creating jobs in the service and manufacturing sectors. This initiative also offers a boost to new start-ups, presenting a well-crafted strategy that the Modi government envisioned long ago.
Conclusion
Many of these decisions are supported by considerable factual research and thoughtful planning by experts. When viewed holistically, the sectors targeted for investment have the potential to develop a significant industrial base in India.
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