FDI Inflows and Trade Relations Between France and India, A Snapshot
India’s journey towards economic liberalisation began in 1991, and more than 25 years on, the country is galloping towards incremental market reforms at a historic pace. The current Modi government enacted 37 FDI (Foreign Direct Investment) reforms across different industry sectors in just the first three years of governance. As the country embraces freer, more pro-market policies, FDI inflows have been increasingly steadily, and India’s bilateral trade relations with European countries have become stronger.
Netherlands, Germany, Switzerland, UK and France all make it to the list of top 10 countries in terms of FDI inflows into the country. Here is how the numbers stack up:
- Total FDI inflows into India have grown from 16,054 mn USD (in ‘13 - ‘14) to 37,366 mn USD (in ‘17 - ‘18.)
- As per stats offered by the French embassy in India, France is the ninth largest foreign investor in India and contributes about 1.65 percent of the total inflows into the country.
- French FDI inflows to India have risen from 229 mn USD (in ‘13 - ‘14) to 403 mn USD (in ‘17- ‘18.)
The French Connection
France and India relations go back a long way. France has championed India’s strategic, diplomatic and economic interests ever since the 1980s. The countries have always had friendly relations, with shared values and similar approaches to many global subjects and issues. For instance, France has steadfastly supported India’s bid to secure a permanent seat on the UN Security Council and the G8, acting as an important ally on an international stage.
In his last visit to India, in 2016, Former French Finance Minister Michel Sapin reported that, French companies invested more than $1 billion per year in India, from 2011 - 2016, and reassured observers by confirming that investments were expected to increase to $10 billion in the next five years, until 2021. In 2016-17 the bilateral trade between the countries stood at US$10.96 billion
A year ago, France - India trade relations got a further boost when French President Emmanuel Macron and Prime Minister Modi committed to further increasing trade relations between India and France to €15 billion (US$17.29 billion) by 2022. This is significant when we consider that not so long ago, in 2015-16, bilateral trade between the countries stood at a less impressive figure of US$ 8.3 billion. During this four-day visit, President Macron and PM Modi also inked 14 key agreements in strategic areas of security, nuclear energy, protection of classified information and also in field of environment, urban development and railways, which will result in more cooperation and help grow those sectors.
French Investments in Key Sectors
Analysing French FDI inflows sector wise, here is a list of the sectors organized by equity flows, in descending order:
- Services sector (19.3 percent)
- Cement and gypsum products (15.59 percent)
- Drugs and pharmaceutical (5.23 percent)
- Industrial machinery (5.04 percent)
- Food processing industries (5.03 percent).
These figures are poised to become significantly better over the next few years with the consolidation and extension of existing investments, and establishment of new French companies in India. Currently, there are over 1000 French companies employing over 7000 employees, present throughout India. Not surprisingly, many of these companies are located in and around urban centres and industrial hubs like Delhi NCR, Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Ahmedabad, and Kolkata.
So far, energy, aeronautics and transport sectors, including railways, have dominated France’s investments in India. Speaking about the path ahead, French Ambassador Alexandre Ziegler said last year, “We do believe in India’s growth. French companies are investing more and more here. While accumulative investments are around €20 billion, we have several major investments coming into the defence industry, in car manufacturing as Peugeot is going to start operations next year, in the energy sector, aviation and aeronautics sectors,”
The business climate in India is improving. In the World Bank’s Ease of Doing Business Report, India’s ranking increased to 100 in 2018, up from 130 in 2017. Speaking about the challenges faced by foreign players new to the Indian landscape, Ambassador Ziegler said, “We still see some challenges, and we are talking very freely on this with authorities, but we see very strong movements in the positive direction. The opening of the defence sector, the GST are definitely a great progress, so we see things moving on the ground too. French investors' confidence continues to be strong and it has been improving in the past two-three years”.
In such a promising climate, French investors are looking to increase their footprint in India. European companies who need expert advice navigating policy frameworks, cultural and bureaucratic landscape in the country are encouraged to contact experts at Arsha Consulting to conduct due diligence, collaborating with local companies and customized guidance on expanding operations in India.
Preeti Prakash | Journalist