Five Reasons why India is a Hot Destination for Foreign Direct Investments

Jan 04, 2019 | 9 months ago | Read Time: 3 minutes | By iKnowledge Team

A stable government, strong economic growth, robust domestic demand, economic reforms and a young workforce are just some of the reasons that FDI investments are growing in India.

Foreign direct investments into India means that companies overseas set up manufacturing facilities here, provide services and produce goods and do business here that earns them revenues, creates local jobs and provide tax inflow to the government.

FDI inflows into India have been rising over the last four years and in FY18, it stood at $44.86 billion according to

The top ten countries investing in India are Mauritius, Singapore, Japan, U.K., the Netherlands, United States, Germany, Cyprus, France and the UAE[1]. Some of the best investments  are the services sector, which was at the top in terms of FDI at $6.7 billion, followed by telecoms at $6.2 billion and computer hardware and software at $6.2 billion.

The reason for the rise in FDI and its sustaining at the high levels is not far to seek. India’s macro fundamentals have improved. There is an upward pressure on inflation but that is due to rising crude prices. The economic growth at 7%-plus makes it one of the fastest growing economies in the world. For the last four years, there has been a stable government at the centre and major economic reforms have been pushed through. Foreign investors are betting on India as a long term investment.

That is the broad overview of the economy. Now let us look at some of the other major government initiatives that are attracting foreign investors and making them look at India as an attractive investment destination.

Relaxation in FDI norms:

  • In real estate broking services, the government has done away with the need for approvals up to 100%.
  • Department of Revenue approvals will no longer be required for FDI proposals, easing the mechanism for FDI, which will now be cleared in 10 weeks of application.
  • The government has allowed 100% FDI in single brand retail through the automatic route.
  • FDI in defence is further sought to been enhanced to 51% through the automatic route from 49% now.

A young and cheap labour force

We have all heard of India’s demographic dividend and it is true. With 47% of the population below the age of 25, India has one of the youngest populations in the world. This means a labour force that will be active and productive for a long time.

Despite rising wages, India still remains one of the countries with a cheap labour force. The cost arbitrage still places the country at a distinct advantage when compared to some of the other Asian countries. Cost of labour is in fact a major factor in driving FDI flows into the country.

Size of the Market

India’s vast growing and consuming middle class, which is prepared to spend is a big lure for companies, which are seeing saturation points in developed countries. India is the third largest economy in the world in terms of purchasing power parity. There is a reason why large retail companies such as Amazon, Walmart and Apple are committed to the Indian market.

Economic performance

Economic growth is strong and expected to sustain over the next two years. The domestic economy is strong enough to sustain demand and inflation rate, which is more than the target of 4%, still at manageable levels. Rising crude oil prices are a concern, but they are a concern all over the world.

Technological and innovation capabilities

The institutes of technology churn out some of the brightest engineering graduates in the region and this is a huge plus for companies who find a ready-made talent pool. The cream of the engineering talent are able to find an outlet to their creativity and innovative instincts while working in the labs of some of the global technology companies, which have set up their manufacturing facilities here.

While FDI boosts the economy, we need to give a boost to our personal finance by adding protection and that comes through insurance. Aegon Life’s iGuarantee Insurance Plan is a good investment idea. It gives guaranteed annual payouts on maturity of 135% of the annualised premium, while on death the beneficiaries get 10 times the annualised premium.

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