ADB Chief Economist Predicts Surge in Net FDI Flows Driven by FTAs, Reduced Import Duties, and an Enhanced Business Environment

The Asian Development Bank’s Chief Economist Albert Park highlighted the importance of Free Trade Agreements (FTAs) and tariff reductions in boosting Foreign Direct Investment (FDI) into India. He pointed out that FDI has seen a significant decline, dropping from $38.6 billion in 2021-22 to $10.2 billion in FY24, and further down to just $1 billion in FY25. The current climate necessitates government action to create an appealing business environment through less restrictive trade policies and the development of better-industrial infrastructure, which could potentially reverse these trends and encourage a resurgence in foreign capital inflows.

For the common citizen and the market, the reduction of import tariffs and the enhancement of the manufacturing ecosystem can lead to increased job opportunities and a more competitive marketplace. A boost in FDI is likely to drive economic activity, leading to enhanced consumer choices and affordability. However, the ongoing volatility in crude oil prices, exacerbated by the crisis in West Asia, has implications for inflation and GDP growth, which could hinder the purchasing power of citizens and overall market stability in the short term.

Looking ahead, the government’s focus on sustaining reforms, particularly in regulatory frameworks and urban planning, will be critical for enhancing the business environment. Amidst the challenges posed by higher oil prices, projected to average $96 per barrel by 2026, the government and the RBI will need to adopt strategic measures to mitigate inflationary pressures while supporting GDP growth, which is expected to stabilize at 6.3% for the current fiscal year. Ensuring an agile response to the external shocks and fostering an integrated approach to urban governance will be vital in creating a conducive atmosphere for sustained economic growth.