On Sunday, Narendra Modi urged citizens to use critical resources like fuel judiciously, restrict overseas travel, and limit gold purchases. This appeal from the PM reflects the reality of many economies navigating the ripple effects of geopolitical volatility and external shocks while trying to cushion the impact.
The protracted conflict in West Asia has significantly disrupted energy markets and supply chains, even as rising energy prices are adding pressure to India's import bill. Past cushions for India, like services exports, may come under pressure in the near-medium term. Growth in services exports could potentially be impacted with AI's rising adoption. The West Asia crisis also poses a short-term risk to remittance inflows, which stand at about $140 bn.
On the other hand, implementation of FTAs, combined with a depreciated rupee, will support export growth. But continued growth will lead to higher demand for merchandise goods. In this backdrop, to strengthen India's BoP and make its supply chains more resilient, focus should now be on accelerating energy transition, increasing FDI and reducing merchandise imports.
During the 11-mth period ended February 2026, India's gross FDI inflows have grown a healthy 12% to reach $88 bn. If current trends persist, India will get about $300 bn of FDI over the next 3 yrs. It should, however, target $500 bn, at around 4% of GDP, similar to what China received during its peak cycle.
This target is achievable, recently concluded FTAs and supply-chain realignments being driven by geopolitical developments. New sectors like electronics, defence and aerospace are also opening up, which require both capital and technology.
India's current strategy of attracting FDI relies heavily on policy liberalisation and limited facilitation. This can be supplemented with a proactive investment promotion strategy. A high-powered Investment Facilitation Task Force, anchored in Invest India or at the Cabinet level, should be established with representation from key ministries, states and industry.
The task force can identify and engage with top global investors. It can act as a single-point interface to speed-up regulatory approvals, provide customised solutions guided by policy frameworks and assist with post-investment support.
Also, a centralised, inter-ministerial body on the lines of the erstwhile Foreign Investment Promotion Board (FIPB) can be set up to evaluate, approve or reject complex and large FDI proposals in a timely manner, and resolve any inter-ministerial differences. It can also centrally monitor and track proposals.
For investors, targeted nudges, such as exemption of long-term capital gains on investments made till March 2027 or a later date (through subscription of shares), can be offered in strategic sectors. Such a move won't have an immediate impact on the exchequer, and can trigger short-term FDI inflows.
To control non-oil, non-gold merchandise trade deficit, GoI should pursue a targeted, product-specific strategy to enhance Aatmanirbharta. A handful of product categories dominate the import bill. Imports of electronics and machinery products (advanced display panels, resistors, capacitors, lithium-ion battery cells, etc) grew 17% and 15%, respectively, to reach $116 bn and $62 bn in FY26.
Future investments in electrification, including energy transition, digitisation and data centres, will further increase demand for electronics and machinery products. In many such products, supply is highly concentrated to a few countries, exposing the Indian economy to geopolitical risks. Barriers like access to technology, scale, supply chain issues and well-entrenched global players make it challenging for businesses to create their own capacity.
India should develop a granular, product-level investment roadmap, identifying 60-80 priority products at the HS-code level. For each product, India should map global manufacturers and translate that pipeline into targeted, actionable investment proposals. If required, PLIs or other incentives can be closely aligned with this strategy.
India has successfully illustrated the power of integrating into global value chains in the mobile phone sector, where exports have grown from $159 mn in FY15 to $30 bn in 2025. This growth has been supported by increased investments in the supplier ecosystem.
Replicating this success, India should target 40-50 global brands that account for a disproportionate share of imports to large economies, and incentivise them to invest in, and source from, India. Vietnam, in particular, has benefited from such an approach with foreign invested entities accounting for 70-75% of its exports. Proactive outreach to such companies and brands through investment facilitation can convert FTAs into tangible export order books in a short period of time.
With institutional coordination, targeted strategies, and proactive engagement with global investors and companies, India can not only bridge near-term external sector vulnerabilities, but also bolster the foundation for long-term competitiveness, export leadership and macroeconomic strength.
