India's economic growth hinges on a sustained influx of long-term capital, moving beyond a reliance on short-term investments and quick exits. While India stands as the world's 4th largest economy, it needs to address challenges to ensure continued expansion. A recent survey indicates confidence in India's growth, yet identifies concerns about job creation, inequality, and global risks.
To achieve its ambitious goals, including becoming a developed nation by 2047, India needs substantial investments in key areas such as infrastructure, manufacturing, and sustainable development. Deloitte reports that India requires approximately $1.5 trillion in investment by 2030 to tackle climate change effectively. These investments should be focused towards renewable energy, bioenergy, and green hydrogen.
However, India's growth has slowed, expanding at approximately 5.4% annually, lower than the decade-long average of 7%. This slowdown is caused by a sluggish manufacturing sector, persistent food inflation, stagnant job growth, and a rising trade gap. The country needs to implement deep reforms to attract foreign direct investment (FDI) and boost manufacturing.
The nature of capital is crucial. Long-term capital fosters stability, encourages innovation, and supports infrastructure projects with extended timelines. Short-term investments, while providing immediate gains, can lead to market volatility and hinder sustainable development. Gaurav Narain, Principle Advisor to the India Capital Growth Fund, suggests that the Indian economy is projected to grow at 10% per annum. India is also becoming an attractive destination for businesses across multiple sectors because of its domestic market, and its potential as an export base.
The Indian government has implemented various policy reforms to improve the investment climate, including liberalizing foreign investment rules, streamlining taxes, and modernizing labor laws. The Department for Promotion of Industry and Internal Trade (DPIIT) is responsible for formulating FDI policy and facilitating FDI inflows.
Despite these efforts, challenges remain. High unemployment, underemployment, and skill mismatches are significant concerns. External vulnerabilities, such as fluctuating oil prices and geopolitical instability, also pose risks. Other challenges faced by the Indian economy include population density, poverty, unemployment, poor education and corruption.
Furthermore, India's regulatory regime, shaped by federal and state authorities, balances economic goals with social and environmental concerns. Protectionist policies, including high tariffs and localization measures, continue to challenge trade expansion and integration into global supply chains. These policies can restrict bilateral trade and make it more challenging for Indian producers to join global supply chains. The Finance Ministry announced that India is reworking its BIT text to make India a more investor-friendly place.
To achieve its growth ambition, India must prioritize attracting and retaining long-term capital. This requires creating a stable and predictable investment climate, addressing socio-economic challenges, and promoting sustainable and inclusive growth. The upcoming Union Budget 2026 will play a crucial role in addressing these issues and setting the stage for India's long-term economic success. Rationalization of Securities Transaction Tax (STT) could be considered in Budget 2026.
