Sectors Expected to Dominate India’s Investment Scenario in 2022 and Enabling Economic Policies

By Naina Bhardwaj, Dezan Shira & Associates 

We analyze the policy pivots and economic trends that set up an optimistic investment scenario for India in 2022 and list the industries that should attract greater interest from foreign investors. 

2021 served as a watershed for the Indian economy in many ways as policies like Atmanirbhar Bharat (Self-Reliant India) accelerated the formal implementation of various Production Linked Incentive (PLI) schemes and a push to negotiate full free trade agreements. The objectives are straightforward – resuscitate the economy from a COVID-linked slowdown, boost domestic production capacity, reduce trade dependencies, invest in higher tech production and R&D, and ease doing business. The post-COVID recovery in India has been led by sectors like automobile, digital infrastructure and services, healthcare, and metallurgy sectors, etc. as the country received a record FDI of US$81.97 billion in financial year (FY) 2020-21 and cross-border mergers and acquisitions (M&A) surged. 

Industry watchers are thus bullish on India’s economic outlook for 2022 – with respect to overall growth, productivity, and capital spending in the country. Ratings agency Fitch has raised the economic growth projection for the FY 2023 to 10.3 percent. 

The Indian growth estimate, characterized by a K-shaped recovery curve, will mainly be driven by robust corporate earnings and the Indian market will continue to be globally attractive. Some of these projections are based on the assumption that by March-April 2022, 85-90 percent of the adult population in India will be double vaccinated. The announcement of upcoming booster doses and COVID vaccines for the 15-18 age group has also been welcomed. 

Economic trends to watch  

An expected increase in India’s consumption levels should propel capacity utilization above the crucial threshold of 75 percent by the end of 2022, thereby catapulting private sector investment activity in 2023. The increase in consumption is being driven by a gradual decline in consumer prices – from 6.20 percent in 2020 to 5.60 percent in 2021 – and experts predict they will further reduce to 4.90 percent in 2022. Additionally, the government spending is expected to be higher in 2022, likely driven by a growth in tax revenues. 

The Indian capital market registered substantial progress along with Vietnam, as compared to all the other countries, since the pandemic began. Various global corporations have been exploring alternate investment destinations to diversify their supply chains to de-risk from chokeholds related to geopolitics, natural disasters, and COVID outbreaks and resultant disease control measures. Recent policies to further liberalize FDI in sectors like insurance, defense, agriculture, and telecommunications, etc. – complementing India’s market size, local talent base, trade infrastructure – have additionally attracted foreign investors to set up in the country. 

Industrial policy reforms, such as the production-linked incentives framework, have created positive investment buzz as they showcase India’s intentions in plugging gaps in its production ecosystem. The national monetisation pipeline, on its part, will generate huge opportunities for foreign investors – both in brownfield and greenfield assets. Other programs by the government that will likely drive India’s macroeconomic growth fundamentals include the logistics infrastructure blueprint in the PM Gati Shakti National Master Plan. 

Meanwhile, in the private sector, start-up ventures saw a boom in the later quarters of FY 22. Scores of new start-ups entered the education technology (edtech), financial technology (fintech), social commerce, and business-to-business (B2B) e-commerce segments, attracting tier-1 funds like Tiger Global, Falcon Edge Capital, and SoftBank. China’s crackdowns on its technology sector may have additionally boosted India’s appeal. A record number of IPOs included food delivery leader Zomato, payments giant Paytm, and fashion and make-up e-commerce platform Nykaa. Overall, 2021 saw 44 new startups turn unicorn in India, including PharmEasy (online pharmacy), Meesho (social commerce), CRED (fintech), Groww (online investment platform), etc. Indian startups received capital flow worth about US$39 billion in 2021, over and above the record US$14.6 billion in 2019 – these numbers are from Tracxn, a platform set up by ex-venture capitalists tracking market intelligence data for private companies, which also filed for an IPO. 

India is among the best performing countries with respect to ranking on the global competitiveness index. Various regulatory improvements to optimize the business climate in India saw its Ease of Doing Business Ranking leapfrog from 142 in 2014 to 63 in 2020. This is expected to continue. In October 2019, India slashed corporate tax rates for new manufacturing firms from 25 percent to 15 percent, so it could be competitive with emerging economies in Southeast Asia. Reduction in compliance burden, policy measures to boost domestic manufacturing through public procurement orders, and an expanding one-stop digital government interface are increasing India’s appeal. Standout measures to facilitate investments include establishing the India Industrial Land Bank (IILB), Industrial Park Rating System (IPRS), National Single Window System (NSWS), and India Investment Grid (IIG). 

In 2022, India’s investment outlook is set to be dominated by an increased focus on clean and sustainable growth and capitalizing on local production strengths – in other terms, decarbonization and deglobalization. These trends picked up last year with government policies incentivizing electric vehicles production and purchasing and PLIs for advanced auto technology and advanced chemical cell (ACC) batteries. Moreover, India is also keen on expanding its trade networks, expediting negotiations for bilateral trade agreements, like with the UAE, Australia, and the UK. The ongoing COVID pandemic and dry powder represented by the potential of India’s underserviced healthcare market – will also see investments directed to R&D, medical devices, pharmaceuticals, etc. Other areas that will continue bolster innovation and support industrial growth are fintech, e-commerce, and logistics. 

Year-end review of India’s 2021 investment scenario 

As per the World Investment Report 2021 by UNCTAD, India was the fifth largest FDI recipient in the world in 2020, with its incoming FDI rising 27 percent over that in 2019 to reach US$81.97 billion. This surge in FDI inflows was mainly driven by investments in the information and communication technology (ICT) industry, given the rolling demand for digital infrastructure and services propelled by COVID-19 induced lockdowns and the resulting work from home transition. 

Computer software and hardware emerged as the top sectors attracting the maximum share of FDI equity inflow, at 44 percent, in FY 2021. This was followed by construction (infrastructure) activities, which received 13 percent share of FDI equity inflow, and the services sector with an eight percent share. Other sectors that recorded a spike in FDI were rubber goods, retail trading, drugs and pharmaceuticals, automobile, and electrical equipment. 

According to the 2021 World Investment Report, cross-border M&As surged 83 percent to US$27 billion, with major deals involving ICT, health, infrastructure and energy. Large transactions included the acquisition of Jio Platforms by Jaadhu (a subsidiary of Facebook (United States)) for US$5.7 billion, the acquisition of Tower Infrastructure Trust by Brookfield (Canada) and GIC (Singapore) for US$3.7 billion, and the sale of the electrical and automation division of Larsen & Toubro India for $2.1 billion. 

As per another report, by Bain & Company, “India M&A: Acquiring to Transform”, there were 85 strategic M&A deals valued at more than US$75 million in 2021, out of which the percentage of first-time buyers is almost 80 percent. Most of these deals have been broad based, ranging from US$500 million to US$1 billion. The greater volume of M&A activity is led by an augmented disruption across sectors led by start-ups and digital insurgents. As companies use M&As to transform their businesses in the post-COVID era, scope and capability deals accounted for a majority share of these deals. Major sectors emerging as M&A hotspots in India are digital, renewable energy, electric vehicles, consumer durables, and fintech. 

The top investor countries to India in FY 2021 were Singapore, US, Mauritius, UAE, Cayman Islands, Netherlands, Japan, UK, and Germany.   

This exceptional performance in terms of direct investment inflows despite the pandemic indicates India’s market appeal, especially given the country’s untapped potential in its rural economy, infrastructure, and industrial production – besides the IT and start-up landscape. Factors like accelerated digitalization, augmented use of artificial intelligence (AI) to overcome barriers set by the pandemic, and increased policy focus on manufacturing in India will carryover this investment buzz in 2022. 

Most lucrative sectors in India for foreign investors in 2022 

According to GlobalData’s FDI forecasting model, the global greenfield FDI is expected to grow by approximately six percent in 2022. India’s ambitious programs like National Monetization Pipeline and National Infrastructure Pipeline as well its enabling corporate policies, should position it to receive a sizeable portion of this incoming FDI. 

Below is a roundup of some of the sectors that will potentially dominate investor interest in 2022. 

Financial services and fintech 

India is witnessing an explosion of fintech innovation as technology is driving innovation in financial products and services on an everyday basis. India has the highest fintech adoption rate in the world – at 87 percent – that is significantly higher than the global average rate of 64 percent, and enabled by factors like the Digital India initiative, a conducive policy environment, and presence of a sizeable talent pool. 

According to India’s Prime Minister Narendra Modi, the future of fintech and industry 4.0 is India. Amitabh Kant (CEO, NITI Aayog) projects that the Indian fintech industry, which has a cumulative funding of over US$27.6 billion, could be valued at over US$150 billion by 2025. 

During the pandemic, when every other sector experienced slump in growth, the fintech sector has thrived as COVID-based restrictions curtailed physical movement and encouraged contactless transactions. At present, there are over 2100 fintech companies in India, out of which more than 67 percent have been set up in the last five years. As of December 2021, India has over 17 fintech companies, which have gained ‘unicorn status’ – that is, a valuation of over US$1 billion. 

FDI policy 

It must be noted that 100 percent FDI under the automatic route is permitted in the financial services sector and is subject to regulation by financial sector regulators like RBI, SEBI, IRDA etc. 


Led by e-commerce giants Amazon India, Flipkart, Myntra, etc., the Indian e-commerce market is riding high on consumption growth spreading to tier-2 and tier-3 cities. Consumerism has picked pace since 2005 on the back of favorable market conditions and policy support. India’s e-commerce market size was approximately US$50 billion in 2018 and is projected to reach US$200 billion by 2027. 

This upsurge of the e-commerce industry post-COVID is also confirmed by “The 2021 Global Payments Report” by the fintech firm Worldpay FIS. The report forecasts 84 percent growth for the global e-commerce sector, which could reach US$111 billion by 2024, propelled by mobile shopping. 

This burgeoning growth of the e-commerce industry is driven by factors like India’s demographic dividend coupled with increasing internet penetration. India adds approximately 10 million daily active internet users each month. The modernization of digital payments infrastructure, backed by BHIM/UPI and NEFT, has thrust India’s e-commerce growth. Other factors like postal reliability aiding in smooth delivery of services along with increased bank account penetration through enabling initiatives like JAM trinity (Jan Dhan-Aadhar-Mobile) have also contributed to the impressive rise of the e-commerce industry. 

FDI policy 

It must be noted that India allows 100 percent FDI under the automatic route in B2B e-commerce and the marketplace model of e-commerce. Further, 100 percent FDI is allowed under the government approval route for food retail e-commerce if the products retailed are manufactured and/or produced in India. 


India’s construction industry offers lucrative investment opportunities for foreign companies as infrastructure modernization, development of ‘smart cities’, improvements to logistics and transportation routes, and affordable housing for all are prominent government mandates. 

The construction industry in India consists of the following segments: 

Real estate: This segment covers residential, office, retail, hotels, and leisure parks, among others. 

Urban development: This segment broadly consists of sub-segments, such as water supply, sanitation, urban transport, schools, and healthcare.

FDI policy 

India’s FDI policy allows 100 percent FDI under the automatic route in the construction sector to achieve the following: 

Complete urban infrastructure and development projects, such as residential or commercial premises, roads, bridges, hotels, resorts, hospitals, educational institutions, and recreational facilities. 

Manage and conduct operations in completed townships and business construction. 

Begin real estate projects under Special Economic Zones (SEZs). 

Construct urban infrastructures such as urban transport, water supply, sewerage, and sewage treatment. 

Construct industrial parks. 

It is projected that the Indian construction business market will likely emerge as the third largest globally by 2025, registering an annual growth rate of 7.1 percent. In FY 2021, the construction sector emerged as the second largest sector in terms of FDI inflow, receiving 13 percent share of the total FDI equity inflow to India. 

Electronic systems 

Electronics System Design and Manufacturing (ESDM) is one of the world’s fastest growing industries, with forward and backward linkages impacting business and economies at a global scale. India’s share in the global electronic systems manufacturing industry has grown from 1.3 percent in 2012 to 3.6 percent in 2019. The electronic devices industry in India was valued at US$118 billion in FY 2020. This industry can be segmented as mobile phones (24 percent), consumer electronics (22 percent), strategic electronics (12 percent), computer hardware (7 percent), LEDs (2 percent), and industrial electronics (34 percent) comprising of auto, medical, and other industrial electronic products. 

With an expanding economy as well as deepening internet penetration, both in urban and rural areas, India has emerged as one of the world’s largest markets for electronic products. It is projected that by 2025, India’s electronic devices industry will reach a valuation of US$400 billion. 

The federal government has approved a PLI scheme with an outlay of INR 400 billion (US$5.38 billion) for this sector. 

FDI policy 

India allows 100 percent FDI in this sector under the automatic route. In case of electronics items for defense, FDI up to 49 percent is allowed under the automatic route and beyond 49 percent, through the government approval route. The cumulative FDI equity inflow during April 2000 to June 2021 in the computer software and hardware sector industry was US$74.11 billion. 


The Indian automotive industry is the fifth largest in the world, with a contribution of 7.1 percent to India’s GDP and employs a workforce of 37 million. Industry estimates project the market size of the Indian automobile sector to reach US$300 billion by 2026, registering a significant growth from the existing US$118 billion in 2020. 

According to the Automotive Mission Plan 2016-2026 (AMP), India is expected to emerge as the third-largest automotive market in the world in terms of volume by 2026, followed by China and USA. 

Within the automotive sector, the e-mobility segment has seen a massive expansion in terms of investor interest. This is also relevant given India’s commitment to combat climate change as well contribute to net zero carbon emissions by 2070. 

According to an independent study by the CEEW Centre for Energy Finance (CEEW-CEF), the EV market in India will be a US$206 billion opportunity by 2030 – if India maintains steady progress to meet its ambitious 2030 targets. Another report by the India Energy Storage Alliance (IESA) projects that the Indian EV market will grow at a CAGR of 36 percent till 2026. 

FDI policy 

India allows 100 percent FDI in the sector under the automatic route, making it attractive for investors to set up their manufacturing units in India. The cumulative FDI equity inflow from April 2000 to June 2021 in the automobile industry was US$30.52 billion. This constitutes 5.58 percent of the total FDI inflow received across all sectors. 

Healthcare and pharmaceuticals 

The Indian healthcare industry comprises of hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance, and medical equipment and is projected to reach US$372 billion by 2022, registering a compound annual growth rate (CAGR) of 39 percent. Further, the digital healthcare market in India was valued at US$1.56 billion in 2018, and is estimated to reach US$6.53 billion by 2024, registering a CAGR of 27.41 percent during the 2019-2024 period. 

Key factors driving growth in this sector include expanding healthcare coverage under government schemes and private insurance, improving urban services, and increasing expenditure by public and private stakeholders. Other factors leading its growth are robotic process automation, shifting disease burden towards non-communicable / lifestyle diseases, and rise in medical tourism. 

India’s pharmaceutical industry is valued at US$41 billion and expected to reach US$65 billion by 2024 and US$120 billion by 2030. 

The Indian pharmaceutical industry includes a network of 3,000 drug companies and about 10,500 manufacturing units, and ranks third globally in terms of pharmaceutical production by volume and 14th by value. 

The federal government has approved a PLI scheme for the pharmaceutical sector with an outlay of INR 150 billion (US$2.05 billion). 

FDI policy 

100 percent FDI is allowed under the automatic route for greenfield projects in the healthcare industry. For investments in brownfield projects, up to 100 percent FDI is also permitted under the government approval route. 

India allows 100 percent FDI under the automatic route in greenfield pharmaceutical projects and 74 percent FDI under the automatic route in brownfield projects – upwards of which can still be allowed through the government approval route.


The telecom sector in India is the second largest in the world with a subscriber base of 1.17 billion. The telecom sector’s exponential growth is primarily driven by key factors like affordable tariffs, wider availability, roll-out of Mobile Number Portability (MNP), expanding 3G and 4G coverage, evolving consumption patterns of subscribers, and a conducive regulatory environment. The sector is expected to contribute eight percent to India’s GDP in 2022 – from approximately 6.5 percent currently. 

India announced the PLI Scheme for Telecom and Networking Products Manufacturing with a total outlay of US$1.6 billion in 2021. 

FDI policy 

100 percent FDI is allowed in this sector, where up to 49 percent is allowed through the automatic route and beyond 49 percent, under the government approval route. The telecom sector in India has received a cumulative FDI of US$37.66 billion between April 2000 and March 2021.    

Food processing 

The Indian food processing industry comprises of the following sub-segments: dairy, meat and marine, cereals, grains and oilseeds, fruits and vegetables, beverages (non-alcoholic), and packaged food. The food processing industry is India’s fifth largest manufacturing sector by capacity and grew 10 percent over the last five years, led by meat and marine, dairy, and packaged foods segments. 

In terms of market size, contribution by food processing is expected to double from US$263 billion in FY 2020 to US$535 billion by 2025. India’s exports of agriculture and processed food stood at US$32.5 billion in 2019, contributing 10 percent to overall exports at a CAGR of 5.9 percent between 2015 to 2019. 

India’s food ecosystem, led by massive growth in the food retail sector, favorable economic policies, and attractive fiscal incentives – offers huge investment opportunities for foreign players. The Indian government has sanctioned 41 food parks funded under the Mega Food Parks Scheme, of which 38 have received final approval. As of August 1, 2021, there are 22 Mega Food Parks functioning in India. Additionally, the federal government has approved the PLI scheme for the food processing sector, with a budget outlay of US$1.46 billion. 

FDI policy 

India allows 100 percent FDI under the automatic route for food processing industries. Moreover, 100 percent FDI is allowed through the government approval route for trading food products manufactured or produced in India, including through e-commerce. 

The food processing sector is the 13th largest recipient of FDI in India, attracting cumulative inflows over US$9.98 billion between April 2000-March 2020. 

Power sector 

As of June 2021, India is the third-largest producer and second-largest consumer of electricity in the world, with an installed power capacity of 384.11 Gigawatt (GW). India generated 1506 TWh of electricity in 2020, followed by China (7790 TWh) and US (4286.6 TWh). Further, by 2020, India ranked fourth in wind power, fifth in solar power, and fourth in renewable power installed capacity. 

India’s electricity consumption patterns are indicative of surging demand, presenting opportunities for foreign investors. The industrial sector accounted for 42 percent of total energy consumption in FY 2019. The sector is projected to attract investments worth INR 9.5 trillion (US$135.37 billion) between FY 2019 to FY 2023. 

Outlook for the Indian power sector for 2022 looks promising, led by improved investor sentiment shaped by developments like the implementation of PLI Scheme for solar photovoltaic modules and gradual replacement of coal by other renewable energy sources. 

FDI policy 

In the last two decades, the power sector in India has attracted FDI worth US$15.36 billion, accelerated by a liberalized FDI policy allowing 100 percent via the automatic route. 

This article was kindly provided by Dezan Shira & Associates. The practice assists UK and Commonwealth nations into Asia and has numerous offices throughout India. Please contact the firm at india@dezshira.com or visit the practice at www.dezshira.com  

Related Reading: Doing Business In India 2022 


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