Asian Development Bank Unveils Strategy to Revitalize Foreign Direct Investment in India

Asian Development Bank Chief Economist Sees Opportunities for Higher Net Foreign Capital Inflows in India

The Asian Development Bank's Chief Economist, Albert Park, has emphasized the importance of Free Trade Agreements (FTAs), reduction in import tariffs, and improvement in the business environment to encourage higher net foreign capital inflows into India. Net foreign direct investment (FDI) in India has moderated in recent years, with a significant decline in the past two fiscal years.

In FY21-22, India attracted a net FDI of USD 38.6 billion, which decreased to USD 28 billion in FY23 and further fell to USD 10.2 billion in FY24. However, the net FDI inflow improved to single-digit figures in FY25, reaching USD 1 billion, and then increased to USD 3 billion during the April-December period of FY26.

According to Park, the Indian government should continue to reduce import tariffs to ensure foreign investments remain competitive. Additionally, the government needs to strengthen the overall manufacturing ecosystem by developing industrial zones with robust infrastructure and integrated facilities, making it easier for foreign firms to address their business needs efficiently in one place.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Park also emphasized the importance of free trade agreements in increasing FDI flow in India. The Asian Development Bank has been pushing the idea of better governance of cities, which involves integrated planning that encompasses the logistical, regulatory, and human capital needs of businesses.

| Comparison of Net FDI Inflows in India (USD billion) | | --- | --- | | FY21-22 | 38.6 | | FY23 | 28 | | FY24 | 10.2 | | FY25 (Apr-Dec) | 3 |

Park noted that uncertainty always leads to a flight of capital to safety and that the Asian market is witnessing this phenomenon triggered by uncertainty. He added that Asia is more vulnerable to Middle East shocks than other parts of the world.

Appreciating various reforms, including labor and GST reforms undertaken by India, Park said that India should continue the momentum. However, he also expressed concerns about the impact of the ongoing Middle East crisis on India, stating that it is likely to shave off 0.6% from the country's GDP growth, bringing it to 6.3%, and also stoke inflation significantly in the current financial year.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

According to the Asian Development Bank's projections, India's GDP growth is expected to remain "robust" at 6.9% in the current fiscal year and rise to 7.3% in FY28, driven by strong domestic demand. The bank had also projected inflation at 4.5% for the current fiscal year.

On the outlook for crude oil prices, Park said that they are likely to stay higher for longer due to the disruption caused by the longer-than-expected Middle East crisis. The bank has projected an average crude oil price of USD 96 per barrel for 2026, which is expected to stay elevated at USD 80 per barrel in 2027.