India's economic landscape is increasingly attracting the attention of long-term global investors, particularly sovereign wealth funds (SWFs) and pension funds (PFs). These entities are drawn to India's growth potential, policy reforms, and expanding investment opportunities. Despite global economic uncertainties, SWFs and PFs are steadily increasing their investments in key sectors of the Indian economy, signaling strong confidence in the nation's long-term prospects.
Several factors contribute to India's appeal as a prime investment destination. The Indian government has implemented various policies to create a favorable environment for foreign investment, including the "Make in India" initiative, Production-Linked Incentive (PLI) schemes, and liberalization of foreign direct investment (FDI) rules. The establishment of an International Financial Services Centre (IFSC) at GIFT City has further enhanced India's attractiveness to international players by providing a tax-neutral finance hub. Moreover, the government has offered tax exemptions, regulatory relaxations, and eased FDI norms to attract long-term foreign investors. The Union Budget 2025 also raised the FDI cap in insurance to 100 percent from 74 percent.
India's rapidly growing economy is a significant draw for SWFs and PFs. The nation is projected to be the fastest-growing G20 economy. This upward trajectory has attracted investors from major economies, including those in the hydrocarbon-rich Gulf states. For example, the United Arab Emirates (UAE) has declared its intention to invest US$75 billion in India over time, while Saudi Arabia has set a US$100 billion investment target.
SWFs and PFs prioritize sectors that demonstrate long-term growth potential and align with India's development agenda. Financial services have emerged as a major attraction for foreign capital inflows, with investments by SWFs climbing from ₹2,688 crore in 2020-21 to ₹16,228 crore in 2024-25. While investments by global pension funds dropped from ₹16,627 crore in 2020-21 to ₹12,626 crore in 2024-25. From FY22 to FY25, financial services attracted the highest inflows at Rs 28,562 crore, followed by IT with Rs 19,135 crore, healthcare with Rs 7,830 crore, and telecom with Rs 7,053 crore. These sectors reflect India's strengths in technology, digital infrastructure, and healthcare innovation. Infrastructure, real estate, and renewable energy are also key areas of interest for these investors.
Several SWFs have already made significant investments in India. The Abu Dhabi Investment Authority (ADIA) is setting up a US$4-5 billion fund for investments in India and has been authorized to operate through GIFT City's tax-neutral finance hub. Goldman Sachs and Mubadala, Abu Dhabi's sovereign wealth fund, have entered into a US$1 billion private credit agreement to co-invest in the Asia-Pacific region, with a focus on India. Norway's SWF, the world's largest wealth fund, disclosed its complete portfolio in 2023, revealing that the market value of its investments in India reached nearly US$24 billion by the end of December 2023, a significant increase from US$17.12 billion in 2022.
A recent report, "The Role of Sovereign Wealth and Pension Funds in India's Growth," highlights the increasing importance of SWFs and PFs as drivers of capital inflow into India. As of November 2024, SWFs had invested approximately USD 626 million directly in India. The report emphasizes that these funds, with their long-term investment horizons, stable returns, and robust risk mitigation strategies, are not only supporting India's economic growth but also enhancing its attractiveness to global capital. In May 2024, total securities holdings by SWFs in India increased by 60%, rising from Rs 3 trillion in 2023 to Rs 4.7 trillion in 2024.
Despite the positive outlook, some challenges could potentially impact future investments. These include regulatory oversight, governance concerns, and geopolitical risks. To ensure smooth capital inflows and fully realize the potential of SWF and PF investments, continued focus on policy reforms, transparency, and a stable investment climate is crucial.
