Calibrating India’s Inbound Investment Framework

18 Oct 2026

Tags: Economy   Investment Models   Private-public investment frameworks

Source: The Hindu

Context: Gross inward Foreign Direct Investment (FDI) reached a record $94.8 billion in FY 2025–26, according to Reserve Bank of India (RBI) data. UNCTAD’s World Investment Report 2026 ranked India 11th among global FDI destinations, following a 44% rise in inflows.

• Trade-led investment strategy: India’s expanding Free Trade Agreement (FTA) network, domestic structural reforms and global economic partnerships aim to strengthen its position as an investment destination.
• Investment–deployment gap: Despite rising commitments, actual investment deployment remains constrained by regulatory fragmentation, compliance costs, litigation and delays in approvals.

Global Investment Trends and India’s Position

• Weak global project finance: International project finance remained approximately 25% below its 2021 peak, reflecting broader investment headwinds.
• Greenfield data centre investment: India attracted approximately $7 billion during the first three quarters of 2025, placing it among the top 10 destinations but behind Thailand and Spain, as well as South Korea ($21 billion), the United States ($29 billion) and France ($69 billion).
• Key challenge: India needs to convert investment commitments into operational projects through predictable regulations, faster clearances and better Centre–State coordination.

Major Domestic Bottlenecks

Centre–State Regulatory Coordination

• Fragmented implementation: Investment policies often require coordination among the Centre, State governments, the Department for Promotion of Industry and Internal Trade (DPIIT), line Ministries and State-level authorities. Delays in notifications and inconsistent implementation increase uncertainty for investors.
• Approval timelines: DPIIT is the nodal agency for investment facilitation but does not independently decide all approvals. A revised Standard Operating Procedure (SOP) issued in May 2026 prescribed a 12-week deadline, but compliance remains uneven.
• Successful coordination: Tata Electronics’ semiconductor facility at Dholera, Gujarat, illustrates how effective administrative coordination can accelerate capital deployment.

Commercial Dispute Resolution

• Judicial pendency: India had nearly 48 million pending court cases as of April, including around six million in High Courts, increasing uncertainty and the cost of doing business.
• Existing reforms: The Commercial Courts Act, 2015 and Mediation Act, 2023 have strengthened commercial dispute resolution and alternative dispute resolution (ADR), while institutional arbitration is increasingly used by businesses.
• Way forward: Better staffing of commercial courts and mediation centres is necessary, particularly because smaller enterprises continue to depend heavily on conventional courts.

Labour Law Implementation

• Four Labour Codes: Parliament consolidated 29 central labour laws into four codes covering wages, industrial relations, social security, and occupational safety, health and working conditions. Central Rules were notified in May 2026, according to the article.
• Concurrent List constraint: Labour falls under the Concurrent List, requiring coordination between the Centre and States for effective implementation. Gujarat notified rules under all four codes, while other industrial States were still finalising theirs.
• Business impact: Different State-level implementation timelines complicate the development of uniform human-resource policies for enterprises operating nationally.

Tax Certainty

• Retrospective taxation: The Taxation Laws (Amendment) Act, 2021 withdrew outstanding retrospective tax demands against entities such as Vodafone and Cairn Energy, addressing a major source of investor uncertainty.
• Dispute settlement: The relaunch of the Vivad se Vishwas scheme has helped reduce the direct-tax litigation backlog by encouraging settlement of pending disputes.

Quality Control Orders and Compliance Costs

• Objective of QCOs: Quality Control Orders (QCOs) mandate compliance with specified Bureau of Indian Standards (BIS) requirements to protect consumers and maintain product quality.
• Compliance burden: The Gauba Committee found that QCOs expanded from fewer than 70 to nearly 790, covering raw materials and intermediate goods. Certification for imported components could cost ₹20 lakh and take six to eight months, disrupting domestic Micro, Small and Medium Enterprises (MSME) supply chains.
• Policy correction: The government withdrew QCOs on certain critical intermediate goods, including PVC, aluminium and zinc, to ease manufacturing bottlenecks.

FTAs and Investor Protection

• India–EFTA TEPA: The Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) includes a historic $100-billion investment target, linking trade cooperation with investment commitments.
• Investment protection gap: The India–EFTA TEPA lacks an independent bilateral investment dispute mechanism. Switzerland is separately negotiating a bilateral investment treaty with India.
• Future negotiations: Experience with investment protection under existing agreements can inform India's negotiations with the European Union (EU) and the United Kingdom (U.K.), particularly regarding non-discrimination, investor confidence and dispute settlement.

Lessons from Successful Investment Partnerships

• India–Singapore CECA: The Comprehensive Economic Cooperation Agreement (CECA) has facilitated more than $195 billion in cumulative FDI since 2000, including $19.8 billion in the preceding year, according to the article. Its non-discrimination and investor-protection frameworks offer lessons for future treaty negotiations.
• Mobile-phone manufacturing: Coordinated policies helped mobile-phone production rise 33-fold from ₹180 billion in FY 2014–15 to ₹6.27 trillion. Exports reached ₹2.59 trillion, India became the world's second-largest mobile-phone manufacturer by volume, and domestic production met 99.2% of domestic demand.
• Broader lesson: Consistent policy implementation, trade integration and coordination between government and industry can convert investment potential into manufacturing capacity and export growth.

Way Forward

• Ensure regulatory consistency: Improve Centre–State coordination, harmonise State notifications and establish transparent, time-bound approval mechanisms.
• Strengthen dispute resolution: Increase judicial capacity, expand mediation infrastructure and promote efficient commercial arbitration to reduce uncertainty for investors and MSMEs.
• Simplify compliance: Rationalise QCOs for critical intermediate inputs while maintaining essential quality and consumer-protection standards.
• Improve labour-code implementation: Coordinate State-level rules and provide clear transition guidelines for businesses operating across multiple States.
• Build predictable investment treaties: Strengthen investor protection, non-discrimination and transparent dispute-settlement arrangements in future FTAs and investment agreements.
• Focus on actual capital deployment: Track the conversion of investment commitments into operational projects, supported by infrastructure, skilled labour and coordinated clearances.

Conclusion: India's challenge is no longer merely attracting foreign investment; it is ensuring that commitments translate into productive capacity, employment and exports. Predictable regulations, effective dispute resolution and coordinated implementation are essential to strengthening India's position in global value chains.