Attracting and Managing International Investment: The Indian Approach

The global investment climate is no longer a simple contest of growth rates. It is a contest of credibility – earned over time, tested through cycles, and sustained by institutions. Capital remains abundant, but conviction is harder to earn. Geopolitical fragmentation, supply-chain realignments, and episodic risk-off cycles mean that the largest movers of global capital – sovereign funds, pensions, insurers, and strategic multinationals – are increasingly selective about where they place long-duration bets.

India enters this evolving investment climate with meaningful advantages: a large domestic market, improving macro stability, and a widening set of investible opportunities across sectors – manufacturing, infrastructure, and technology-enabled services. The next leap in India’s positioning as a preferred investment destination will come from a shift in how India thinks about foreign capital – from managing volume to managing quality.

Moving the Lens: From Quantity to Quality

A mature national investment strategy optimises the quality mix of foreign capital, not just its quantity. The following four dimensions matter:

Duration (does the capital stay through cycles?)

Productivity (does it build capacity and deepen supply chains?)

Resilience (does it behave predictably in a shock?), and

Spillovers (does it create jobs, skills, and domestic R&D?).

This lens helps reconcile a debate policymakers and markets often have in parallel. India benefits from both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), but each plays a different role. FDI builds capacity and embeds technology. FPI deepens liquidity and lowers the cost of capital but is more sensitive to global risk appetite. The policy task is not to prefer one over the other – it is to design a system where each participates productively, with guardrails suited to its nature.

Why FDI Matters and How to Think About It

FDI is long-duration risk capital that, when well-directed, supports capital deepening and improves total factor productivity. For an economy seeking to accelerate industrial transformation – particularly in manufacturing and infrastructure – domestic savings are necessary but not always sufficient when large-scale investment must be front-loaded to capture global supply-chain shifts.

Beyond capital formation, FDI embeds India into export-oriented production networks in electronics, renewables, semiconductors, and technology-enabled services. The strategic objective is to move from assembly-led growth toward higher domestic value addition: design capability, process innovation, component ecosystems, alignment with sustainability standards, and globally competitive IP.

The most durable gains from FDI are structural. Multinational firms bring production standards, supply-chain discipline, R&D intensity, and managerial practices that diffuse through vendor development and workforce training. FDI also performs a signalling role: sustained inflows function as a revealed-preference vote on growth prospects and institutional credibility, compressing risk premium and crowding in domestic private investment.

Reducing Friction: Taxes, Compliance, and Regulatory Predictability

Attracting quality capital requires more than a competitive pitch – it requires removing the friction that quietly narrows the investible universe. Openness to international capital, transparency in rulemaking, and consistency in applying standards of governance shape how risk is priced. Three areas stand out.

First, tax predictability is foundational. Retrospective uncertainty has historically been one of the most cited investor concerns. Resolving structural tax anomalies – such as the April 2021 date restriction affecting tax exemption eligibility for certain infrastructure holding company structures – sends a direct signal that the rulebook is stable, and that legacy and new vehicles are treated with fairness and consistency.

Second, compliance burden matters equally. SEBI has sharpened its focus on reducing trade frictions for foreign investors through digital documentation, streamlined block deals, and cleaner market plumbing including netting. Budget 2026-27 proposed review of Foreign Exchange Management Act (FEMA) non-debt instrument rules and higher FPI limits in listed equities move in the same direction. The cumulative effect of these steps will widen the eligible investor base and reduce the cost of participation.

Third, dispute resolution timelines remain a persistent concern for long-duration investors who must underwrite legal risk over a decade or more. Credible, time-bound resolution – across commercial courts, arbitration, and sector regulators – is a precondition for bankability.

The Investment Flywheel

Countries that sustain inflows of high-quality international capital build a flywheel. India’s next upgrade is to make that flywheel reliable across sectors and states.

Entry: Most global investors can price commercial risk; what they struggle with is uncertainty. A stable, legible rulebook – particularly for taxation and regulatory interpretation – often matters more than incremental fiscal incentives. The strongest signal India can offer is consistency.

Enablement: The after-entry experience is the real investor story. It is judged by the predictability of approvals, the stability of compliance, and the reliability of counterparties. India has made progress on entry facilitation; the next phase is to institutionalise aftercare as a policy discipline.

Scale: International capital scales fastest where it sees repeatable platforms with standardised documentation and governance. Strategic manufacturers want ecosystems where suppliers, logistics, utilities, and talent scale alongside production.

Exit and Reinvest: Orderly exits are capital recycling, not capital flight. A system that enables smooth, rule-based exit creates confidence for new entries and, over time, lowers the economy’s cost of capital.

A Geographic Truth: Expand the Map

India’s investment geography remains concentrated. According to the DPIIT data for FY2024-25, Maharashtra attracted 39 per cent of the country’s total FDI equity inflows, followed by Karnataka (13 per cent) and Delhi (12 per cent). Gujarat, Tamil Nadu, Haryana, and Telangana account for most of the remainder. Together, these seven states capture the overwhelming majority of foreign capital.

Investors cluster where execution is predictable – where land is available, approvals are time-bound, and local administration is responsive. India’s next wave of manufacturing and infrastructure investment requires an explicit effort to expand that map: measurable service standards for land readiness and clearances, contract enforcement, logistics reliability, and aftercare for large investors.

Infrastructure and Long-duration Capital

If India wants to crowd in stable institutional capital at scale from pensions, insurers, and sovereign funds, infrastructure is the most scalable channel. The priority is building pension-grade investable platforms: broadening PPP participation beyond roads and select power segments, making the concept of asset monetisation a delivery programme, and strengthening bankability through regulatory clarity and credible dispute resolution.

Long-duration capital can underwrite commercial risk; it prices policy and counterparty risk heavily. Bankability improves when concession frameworks are stable, risk allocation is balanced, and dispute resolution is credible. Deeper InvIT and REIT platforms, a more liquid corporate bond market for infrastructure SPVs, and stable participation rules create the exit infrastructure that supports larger entry allocations.

The Way Forward

India’s international investment agenda is at an inflection point. The country has earned a stronger reputation as a destination for global capital. The next step is to compound that credibility – making the investment system more repeatable across states and sectors, converting a higher share of inflows into real assets and capabilities, and maintaining stability through cycles including orderly exits and reinvestment.

A modern Indian approach should be judged by three outcomes:

Quality – a better mix of long-duration, productive capital

Conversion – a higher share of inflows becoming real assets

Continuity – stability and predictability through cycles.

Reducing friction – in taxes, compliance, approvals, and dispute resolution – is not a separate agenda. It is the foundation on which all three outcomes rest.

Note: This article has been authored by N. Venkatram, Part-time member, SEBI and Country Chair, CDPQ India, CDPQ Global. It was first published in the March 2026 issue of CII ARTHA (Issue 10)