Why Foreign Investors & Businesses Should Start their Operations in India

India offers gripping opportunities for foreign investors and businesses due to nation’s growing market, technological prowess, skilled workforce, improved infrastructure, and business-friendly environment. With a population of over 1.3 billion, India has a massive consumer base further boosted by the expanding middle class, rising urbanization, and internet penetration. 

In recent years, India has solidified its global position in technology & services. The growth is driven by country’s talented workforce in IT & engineering sectors. India boasts over 1500 GCCs, providing services like cloud computing, data analytics, R&D, and software development.

Cities like Gurugram, Bangalore, Pune, and Hyderabad have become global technical & innovation hubs, attracting major MNCs to establish headquarters and fostering a thriving startup ecosystem.

Factors Shaping India as a Lucrative Business Destination: 

India’s strong macroeconomic outlook has been attributed to rising foreign investments. India has been the 5th largest economy with a GDP of USD 3.7 trillion and aims to become a developed nation by 2047. India's economic strength is driven by robust domestic consumption, infrastructure development, and healthy investment. As a result, foreign exchange reserves reached a record USD 670.1 billion in 2024. 

India’s per capita income was USD 2,600 in 2023 and is slated to reach USD 4,000 by 2027. This rising per capita income signifies increasing consumer spending power creating a bundle of opportunities for businesses and foreign investors. 

As per World Bank data, India’s consumer spending is set to reach USD 4 trillion by 2030. With a growing middle class and rising disposable incomes, businesses can expect higher sales and profitability. As per capita income in India is spiralling, consumer behaviour is also transforming. Consumers now look beyond essentials and spend generously on eating out, fashion & apparel, lifestyle, gadgets, travelling & hospitality and much more. 

India with over 900 million internet users by 2025 and an e-commerce boom, creates a lucrative space for businesses and foreign investors. This digital surge will expand market reach giving businesses access to a vast consumer base. In 2022, India had 338 million digital payment users, out of which 36% hail from rural areas. This digital transformation, coupled with increasing smartphone adoption will make India an attractive destination for foreign businesses looking to venture in retail, e-commerce, payment ecosystem, fintech, etc.

Government Initiatives Supporting the Cause:

Initiatives like ‘Digital India’ have played a critical role in expanding digital infrastructure and internet access across the country. Policies like BharatNet have been focused towards connecting rural areas with broadband Internet. Digital India has also made a clear path for digital transactions through initiatives like UPI. The volume of UPI transactions has witnessed robust growth, with billions of transactions taking place every month. Paytm, PhonePe, Google Pay, and BharatPe are leading digital payments in India. 

The Atmanirbhar Bharat is another crucial policy which aims to focus on strengthening the manufacturing sector and transform India into a key node in the global supply chain. The National Manufacturing Policy (NMP) will improve manufacturing sector’s GDP share to 25%. The policy also focuses on creating 100 million jobs. Enhanced healthcare, feasible business reforms and financial support for industries are other key features the initiative focuses on. 

As a result, these initiatives will provide a skilled workforce and adequate infrastructure for businesses to tap into the Indian market. Additionally, Digital India will expand the customer base for businesses via e-commerce and digital services. This evolving market will be a lucrative draw for foreign companies.

India’s Talent Pool:

India’s skilled workforce is experiencing robust growth, driven by increasing investments in education & skill development. India’s young and tech-savvy population has played a major role in fueling the transformation.  AI/ML graduates had an employment rate of 48% followed by backend developers, data scientists & analysts with 39%. Applied Mathematics has the highest employment rate of 72%. Other non-technical fields like financial analysts, business analysts, and human resources associates have an employment rate of 45%, 45%, and 44% respectively. This underlines the availability of talented professionals meeting the demand for cutting-edge technology. Businesses can benefit from this skilled workforce as it will reduce recruitment costs and other expenses. 

India’s vocational training sector has also undergone significant transformation. There are almost 15,000 ITIs in the country with a seating capacity of 2.4 million. National Skill Training Institutes (NSTIs) have also been established with 33 NSTIs, including 9 exclusively for women. These institutes provide equipment and machinery training for various industries which is crucial for developing a skilled workforce to meet the industry needs. The ongoing improvements in the training sector will equip businesses with skilled technicians, reducing the training cost. Hence, the availability of skilled labour makes India a more attractive business destination.

India’s vocational training sector has also undergone significant transformation. There are almost 15,000 ITIs in the country with a seating capacity of 2.4 million. National Skill Training Institutes (NSTIs) have also been established with 33 NSTIs, including 9 exclusively for women. These institutes provide equipment and machinery training for various industries which is crucial for developing a skilled workforce to meet the industry needs. The ongoing improvements in the training sector will equip businesses with skilled technicians, reducing the training cost. Hence, the availability of skilled labour makes India a more attractive business destination.

 India’s minimum wage is to be around USD 2.16 per day which shows that the nation offers the most competitive labour cost across Asia and other emerging markets in the world. Although, the figures may vary depending on state, occupation, and skill set.  Further, the industry is categorized into unskilled, semi-skilled, skilled, and highly skilled. As per media reports, India’s monthly median salary is around USD 355 and average monthly salary was estimated to be USD 566 (source: World of Statistics). 

Hence, India offers relatively lower labour costs when compared to other developed economies. The lower workforce expenses will lead to higher profit margins. This indicates substantial benefits for businesses looking to start their operations in India. The affordability coupled with the growing skilled workforce sets India as a captivating destination for foreign investors.

The banking, financial services and insurance (BFSI) of India is growing rapidly driven by driven by innovation, digital transformation, increasing awareness and fintech revolution. In 2023, the BFSI sector witnessed substantial expansion, leasing over 11 million square feet of office space in 2023. Furthermore, the insurance market of India is expected to reach USD 250 billion in 2023. This indicates strong interest towards risk mitigation and financial security. Also, the fintech market is expected to grow at USD 421 billion by 2029. These factors collectively have been a key driver of Indian economy.

India’s tourism and hospitality sector has also witnessed substantial expansion. The rising domestic and international travels has been the key growth driver of the segment. The hospitality sector of India is expected to reach USD 47.83 billion in 2034, rising from USD 29.3 billion on 2024. Concepts like staycations & workcations are gaining popularity among young population. 

Hotels are actively adapting digital technologies like online check in, keyless entry, virtual assistance, etc. The industry is also coming up with trends like health & wellness tourism and Ayurveda & yoga retreats. The hospitality sector of India is major employer, accounting for 8% of the country's total employment. 

Government initiatives like Incredible India, Swadesh Darshan, and SAATHI has been crucial in shaping the tourism industry. In 2024, the country experienced 5.54 million international arrivals, generating a revenue of USD 18.17 billion. More than 45% foreign tourist arrivals were for leisure holiday and recreational activities. The dynamic tourism and hospitality sector is poised to play a crucial role in India's economic development.

Manufacturing Industry of India:

India’s manufacturing industry is poised to grow fast driven by factors like government initiatives (Make in India), growing urban population, rising disposable income and infrastructure development. The market is projected to reach USD 240 billion by 2025 with the expansion of key verticals like automobile, textile, retail, FMCG, consumer goods, etc. The transformation of the manufacturing sector makes India a lucrative destination for foreign investors and businesses. Additionally, Foreign Direct Investment (FDI) in the sector has been enhanced to 74%. Global mobile phone, luxury, and automobile players have been establishing their manufacturing units in the country. Some of them are Puma, Gap, iPhone, Kia Motors, Volkswagen, Coca-Cola, Samsung, etc. 

India’s retail market is also blooming and is projected to reach USD 2 trillion by 2032 (Source: BCG). The sector accounts for 10% of the country’s GDP. The food & grocery vertical holds 63.3% of the total market share leading the space. Followed by Textile & Apparel Industry with a market share of 11.7%. The industry is projected to reach USD 250 billion by 2030.

The FMCG sector of India is growing at a CAGR of 27.9% and is poised to reach USD 615 billion by 2027. Urban areas are pivotal to the FMCG sector in India, contributing approximately 65% of the overall revenue generated. The growth in the sector is attributed to changing lifestyles, a rise in disposable income, and organised retail formats like supermarkets, hypermarkets, and malls.

The Paint & Coating industry has grown substantially, moving at a CAGR of 9.38%. The market is expected to reach USD 10.46 billion by 2025. Some of the leading players in the segment are Berger Paints, Nerolac Paints, Asian Paints, Dulux Paints, and Indigo Paints.

India's Infrastructure Landscape:

India's infrastructure sector is poised for significant expansion. The GOI is expecting to invest USD 1.4 trillion in the country’s infrastructure by 2025. The investment aims to create more jobs and stimulate economic structure with a strong focus on areas like clean energy, urban infrastructure, and public digital infrastructure. The development prioritizes on improving airports, highways, metro lines, and business parks to enhance connectivity. Major players like Larsen & Toubro, Tata Projects, and Hindustan Construction are at the forefront of the ongoing transformation. 

Some recent investments and projects to enhance India’s infrastructure:

•    The Ministry of Civil Aviation has announced 15 airport projects worth USD 12.1 billion by 2028. Also, The Ministry of Transport & Highways have been heavily investing on highways and roadways in recent years. In 2023, NHAI has spent USD 24.7 billion on national highway construction.  

•    In between 2020 to 2023, the construction development sector including townships, housing and built-in infrastructure projects received FDI investments of USD 26.54 billion. (Source: IBEF)

•    The private Indian airports will undergo substantial infrastructure development between 2024-2027. The capital investment will be around USD 7.5 billion for these projects. This expansion will accommodate 65 million new passengers annually. Jewar Airport (Noida), Purandar Airport (Pune), Mopa Airport (Goa), and Kalyani Airport (Kolkata) are some upcoming airports in India. 

•    India is actively investing on metro networks to improve city mobility and enhance mass transit standards. The GOI will spend USD 3 trillion to expand the metro network between 2022 to 2027. Future metro projects are planned in various cities including Lucknow, Kanpur, Chennai, Surat, and Patna. 

•    According to media reports, Samuthra Infrastructure announced an investment of USD 10 billion to develop business parks across 10 states. The initiative will create over 2,00,000 jobs in the nation. Also, under National Industrial Corridor Development Programme (NICDC) program GOI aims to develop 12 industrial nodes with an investment of USD 3.45 billion.

India’s Dynamic Startup Segment:

India’s startup ecosystem has undergone a substantial transformation over the past decade. The growth in the segment is attributed to government support, tech-savvy workforce, better funding opportunities, internet penetration, and a strong focus on innovation & technology.  

India is the 3rd largest startup hub in the world with over 1,28,000 startups registered as of 2024.  India is also witnessing major unicorns coming over the space with the total number expected to reach 280 by 2030. Delhi NCR, Bangalore, and Mumbai are the top 3 startup destinations. 

Indian startups have raised an impressive funding of USD 150 billion since 2014. This strongly suggests India is a thriving investment space for foreign investors. Fintech, e-commerce and enterprise tech are the top 3 industries with proven market demand, accounting for 52% of the total investment.

GOI has been at the forefront of India’s startup ecosystem with initiatives like Startup India, Atal Innovation Mission (AIM), and Mudra Yojna Scheme. The Startup India, launched in 2016 was focused towards building a strong ecosystem for startups and innovations. To aid startups financially the government implemented Startup India Seed Funds Schemes (SISFS). Further, Credit Guarantee Scheme for Start-up, CGSS offers credit guarantees to startups seeking loans from banks, financial companies, and other such bodies. The initiative also offers a digital platform, “Startup India Online Hub”, that connects startups, investors, mentors, and other crucial stakeholders. Similarly, Atal Innovation Mission (AIM) aims to provide guidance and resources for entrepreneurs through Atal Tinkering Labs (ATLs) and Atal Incubation Centers (AICs).

Challenges and Bottlenecks in Doing Business in India

• As per the World Bank data, India ranks 60th out of 190 economies regarding ease of doing business. Although the improvements have been made, GOI still needs to simplify the regulatory hurdles.
  
  
• India has made progress in infrastructure development over the past decade, but challenges remain in various sectors like transportation, energy, and logistics. The inadequate infrastructure results in higher logistics costs, impacting business competitiveness.
• India’s complex tax system with multiple layers attached to it makes business operations difficult and costly. Additionally, enforcement of intellectual property rights (IPR) is a concern in India.
  
  
• The country’s diversity can cause various linguistic and cultural barriers. Keeping track of changing consumer preferences across different states can be challenging for businesses. Although with the right business strategies and marketing it can also be an advantage.
  
  
• India is a competitive market with both domestic and international players, further divided into organized and unorganized sectors. Local players always offer strong competition in terms of cost. Businesses should be innovative and efficient to succeed. 

Feasibility & Market Insights Study for Foreign Investors & Enterprises 

As Indian economy is growing & thriving, international investors, businesses, and corporates will continue to enter the market. This will also necessitate the need for custom feasibility study and market research services. Despite a high potential market, India is also a competitive and diverse market, which further necessitates the need for high quality data and actionable insights. A feasibility and market study can offer a wide range of valuable insights & information across:

•    Market size & industry insights

•    Market trends & insights

•    Market share analysis

•    Consumer behaviour research 

•    Product research

•    Information on distributor insights

•    Go-to market strategy 

•    Policy & regulatory information 

•    Financial research & analysis 

•    Business & financial plan 

•    Growth roadmap & key success factors

For any further information, pls drop us a mail at info@theindiawatch.com

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