FTAs, lower import duties, better business environment to boost net FDI flows: ADB chief economist

Free Trade Agreements (FTAs), reduction in import tariffs and improvement in business environment would encourage higher net foreign capital inflows into India, which have moderated in recent years, ADB Chief Economist Albert Park has said.

During 2021-22, India attracted net foreign direct investment (FDI) of USD 38.6 billion, which came down to USD 28 billion in FY23 and further fell to USD 10.2 billion in FY24.

Net FDI -- inflow minus outflow -- came down significantly to single digit to $1 billion in FY25 but improved to $3 billion during the April-December period of FY26. The government should continue reducing import tariffs to ensure foreign investments remain competitive, he told PTI in an interview.

It also needs to strengthen the overall manufacturing ecosystem by developing industrial zones with robust infrastructure and integrated facilities, making them easier for foreign firms to address their business needs efficiently in one place, he said, adding that free trade agreements should help increase FDI flow in India.

"Asian Development Bank has also been pushing the idea of better governance of cities. This involves a form of integrated planning that encompasses the logistical, regulatory, and human capital needs of the businesses. Smart urbanism that addresses the concerns of the business community," he said.

Stressing that uncertainty always leads to a flight of capital to safety, Park said the Asian market is witnessing this phenomenon triggered by uncertainty.

Asia is a little bit more vulnerable to the Middle East shocks than other parts of the world, he added.

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Appreciating various reforms, including labour and GST, undertaken by India, Park said India should continue the momentum. On the outlook on crude oil prices, Park said they are likely to stay higher for longer due to the disruption caused by the longer-than-expected Middle East crisis.

"With a higher oil price expectation, we actually have it as $96 per barrel as average for 2026 as per the new reference scenario. It should stay elevated at $80 per barrel in 2027. So, our idea is that oil prices are likely to stay higher for longer," he said.

Future prices are showing higher prices farther out into next year than they did before, he said.

However, he said, "We have also seen always a kind of a premium of the spot market prices and the nearby futures market because there is such a shortage currently." On the impact of the ongoing Middle East crisis on India, Park said it is going to shave off 0.6% from the country's GDP growth, bringing it to 6.3 per cent, and also stoke inflation significantly in the current financial year.

The Asian Development Bank (ADB) in April projected India's GDP growth to remain "robust" at 6.9 per cent in the current fiscal year, and rise to 7.3% in FY28, driven by strong domestic demand.

With regard to inflation, ADB had projected 4.5% for the current fiscal year.