India’s reforms after pandemic attracting global firms: Deutsche’s David Lynne

India’s reforms after the pandemic and the growing size of the nation’s consumer market are attracting corporations from across the globe, including the US and Europe, according to David Lynne, head of corporate bank at Deutsche Bank.

“India’s post-covid initiatives are substantial. India’s scale and initiatives make it increasingly appealing for corporations despite certain complexities. India’s growth is distinctive, balancing economic reform with a dynamic democratic framework,” Lynne told Mint in an interview. “Unlike China’s industrial park model, India’s development is more decentralized. However, its potential remains clear, and it is on track to become the world’s third-largest economy.”

The trend began earlier but gained momentum post-Covid, he said. “First, labour costs in China have risen as its wealth has grown. Second, trade barriers were increasing even before the pandemic. Finally, Covid highlighted the risks of relying on a single global supply chain,” he said. “Many multinationals now produce within China largely for the Chinese market itself, which was less common two decades ago.”

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In India, the sectors that have considerable potential are advanced manufacturing, heavy industry, and chemicals, he said.

As the world started to look for an alternative to China post the pandemic, India announced multiple reforms post the pandemic to attract foreign investments. That included production-linked incentives scheme across sectors that include chemicals and semiconductors to drones.

The PLI scheme, according to the government’s calculations, has generated a net present value (GST+direct tax – incentives) of ₹2 lakh crore. The total projected sales under PLI schemes have been about ₹35,000 crore, with a large amount coming from the domestic market. The other reforms have been around digital economy, bankruptcy, infrastructure creation, besides reducing the red tape to improve the ease of doing business in India.

“Although I am not a PLI expert, the scheme’s objective of attracting investment is clear, and it has resonated with global investors. India has grown significantly over the past decade. The digital economy, improved bankruptcy laws, and logistical enhancements illustrate India’s growth,” Lynne said. “Furthermore, India’s large consumption market is now a considerable factor, evident from sectors like entertainment and the adoption of premium products."

The country is seeing a lot of inward movement from Europe and the US and and the growth in domestic demand has contributed to it, he said.

Lynne said that approximately 20% of Deutsche Bank’s global staff and a large part of the operational support for their corporate and investment bank is provided from India and the market is vital for them.

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The interest is visible in India's FDI inflows, which have increased about 20 times from 2000-01 to 2023-24.

According to the Department for Promotion of Industry and Internal Trade, India's cumulative FDI inflow stood at $695.04 billion between April 2000 and June 2024, mainly due to the government's efforts to improve the ease of doing business and easing of FDI norms. The total FDI inflow into India from April 2024 to June 2024 stood at $22.5 billion and FDI equity inflow for the same period stood at $ 16.2 billion.

The FDI inflow into the country is set to continue its growth trend, India Brand Equity Foundation (IBEF), a government backed information provider, said in a report.

According to World Investment Report 2023, India was among the top 10 global FDI destinations... and the inflow will continue on the back of several reforms carried out by the country. “All these factors may enable India to attract FDI of US$120-160 billion yearly by 2025,” the report read.

The optimism comes despite a slowdown in inflows in recent years. FDI inflow as a percentage of GDP, too, fell consistently in the past three years--from 3.06% in FY21 to 1.99% in FY24. 

'Normal India-China ties a positive’

Last week, Prime Minister Narendra Modi and Chinese President Xi Jinping agreed to boost communication and cooperation between their countries and resolve conflicts to help improve ties that were damaged by a deadly military clash in 2020. The two leaders met on the sidelines of the BRICS summit in Russia for their first formal talks in five years.

This is expected to boost Chinese investment in India, which the Economic Survey had recommended to fund India’s growth.

“We believe closer economic ties between India and China could offer mutual benefits. Across Asia, shifts in supply chains are moving production to other countries like Vietnam, Thailand, and Indonesia. India stands to benefit by increasing its role in these supply chains. It’s a mutually beneficial relationship,” Lynne said. 

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“India offers a large and growing market, while China remains a significant consumer powerhouse. German companies, for example, have invested heavily in China,” he said. “India can expect benefits from increased inbound investment, which would, in turn, drive economic growth.”