India’s investment climate remains strong on robust fundamentals, reform measures

India’s investment climate remains strong supported by the country’s robust economic fundamentals, prudent fiscal management and regulatory reforms, said Ajay Sethi, Managing Partner at accounting and consulting firm Baker Tilly ASA India, on Friday.

He said reforms such as simplified labour codes, changes to the Income Tax framework and improved access to policymakers have helped strengthen the business environment.

Responding to a query on the factors behind rising investor confidence in India, Sethi said the country’s growth trajectory and the Government’s cautious fiscal approach have boosted global confidence.

“From a global reference, India’s fundamentals are on the high trajectory of growth and the Government is taking a very sensible approach. We have set a fiscal deficit target of 4.3 per cent, instead of 4.4 per cent, so we haven’t taken very exuberant targets, which gives confidence,” he said.

He added that regulatory reforms, including the simplification of labour codes and the Income Tax Act, have further improved the investment climate. So “Investments are continuing to boom, and sectors are continuing to attract investments all across”.  Globally, many organisations now consider India a priority market, with expectations that the country could emerge as one of the biggest growth drivers in the Asia-Pacific region.

However, Sethi cautioned that foreign investors must recognise that India is not a single uniform market, as consumer preferences vary significantly across regions. He said detailed feasibility studies are crucial for businesses entering the Indian market, as they need to account for multiple layers of taxation and regulatory requirements beyond federal taxes.

“For the foreign investor looking at India, the first thing is that they should not look at India as a single market, and by that I mean the taste, the way people look at the markets and the products it can vary from location to location. So a foreign investor should try to understand that what is going to sell in North India may not necessarily sell in south India, and therefore you have to do better research,”

Commenting on the recent Supreme Court ruling involving private equity firm Tiger Global, Sethi said the verdict fundamentally differs from the earlier Vodafone tax dispute and has not significantly impacted investor sentiment.He noted that the ruling focused mainly on the manner in which taxes were structured and how capital gains were routed through a pass-through entity, rather than questioning India’s residency or treaty framework.

However, private equity funds may become more cautious in structuring their investments and could consider more tax-efficient jurisdictions such as Singapore. “The only likely outcome is that private equity funds may be more careful about how they structure their operations and may prefer tax-efficient jurisdictions like Singapore,” Sethi said.

In January, the Supreme Court upheld the decision of Indian tax authorities that capital gains arising from US-based investor Tiger Global’s exit from Flipkart in 2018 are taxable in India.