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

ADB Chief Economist Albert Park highlighted key factors to revive India’s declining net Foreign Direct Investment (FDI) flows, which dropped from $38.6 billion in 2021-22 to $1 billion in FY25 before slightly improving to $3 billion in April-December FY26. Park emphasized that Free Trade Agreements (FTAs), lower import tariffs, and a stronger business environment—including better urban governance and integrated industrial zones—would attract more foreign capital. He stressed that uncertainty, particularly from the West Asia crisis, is driving capital flight to safer markets, making Asia more vulnerable than other regions. Park recommended continued reforms, such as labor and GST changes, to sustain growth momentum. The ADB had earlier projected India’s GDP growth at 6.9% for FY26 and 7.3% for FY28, but the West Asia crisis may reduce FY26 growth by 0.6%, bringing it to 6.3%, while inflation could rise above the earlier forecast of 4.5%. Oil prices, expected to average $96 per barrel in 2026 and $80 in 2027 due to prolonged disruptions, will further strain economic stability. The economist also noted a premium in spot market prices over futures due to current shortages, signaling prolonged elevated costs. Park urged India to enhance manufacturing ecosystems with robust infrastructure and integrated facilities to meet foreign investors’ needs efficiently. The ADB’s push for ‘smart urbanism’—combining logistical, regulatory, and human capital planning—was cited as critical for business competitiveness.