What lessons can India take from SE Asian nations in attracting foreign investments?

BENGALURU – To live up to its foreign investment potential in a period of uncertainties, India can take lessons from emerging South-east Asian economies like Vietnam, Indonesia, Malaysia and Thailand in attracting multinational capital amid shifting supply chains and tariff risks.

This was the advice in India’s 2026 Economic Survey, which compiles and analyses data from the government and other official sources, and recommends pathways for India’s economic policies. 

In the financial year 2025, gross foreign direct investment (FDI) into India stood at US$81 billion (S$102.4 billion), a 13 per cent increase from US$71.3 billion in financial year 2024. 

Dr Anantha Nageswaran, India’s chief economic adviser and author of the latest economic survey, told The Straits Times that the FDI headline numbers are encouraging but below India’s potential. 

“The global economic system is undergoing a sort of recalibration, and we expect things to be volatile or rapidly changing for several years. To really drive what Prime Minister Narendra Modi calls the reform express, India must adopt an entrepreneurial approach to do more in a shorter timeframe,” Dr Nageswaran said. 

He said that India needs a clearer idea of what it needs to do domestically, and do it fast, whether it is deregulation, building infrastructure, skilling, or creating an ecosystem for research and innovation. “India has to run the marathon like a sprint,” he added. 

The economic survey is an annual report card on the Indian economy presented by the Ministry of Finance before the national budget to guide economic policy and structural reforms. Its recommendations in the past three years have coaxed the Indian government to focus on issues like energy security, deregulating the nuclear energy sector, and training people for sectors such as healthcare and tourism.

The 2026 report advises India to streamline its policies for industrial growth, employment and technological innovation. It can leverage its young workforce, unrivalled domestic market and relative political stability with more intentional policies to attract FDI in sectors where India can feasibly build “strategic indispensability”.

India’s rival in manufacturing supply chain is not China

Investors that ST spoke to said India’s rival in the global manufacturing supply chain is not China, but smaller Asian economies that have fostered robust licensing policies, industrial zones and skilled manpower.  

Dr Nageswaran suggests emulating some policies adopted by emerging economies such as Indonesia, Mexico, Poland, Morocco and Vietnam to effectively leverage the trade and investment reorientation employed by China and the US.

The survey called these “connector countries” because they position themselves as conduits for global trade and investment, offering multinational enterprises not just subsidies, but also tax incentives, and export-oriented policies for strategic sectors. 

“India is somewhat late to the game... It has to work doubly harder than East Asian countries that had a much more conducive and favourable geopolitical backdrop (like a ready US market since the US-Soviet Union Cold War) and didn’t have the compulsions of not being able to use affordable and cheap fossil fuel,” Dr Nageswaran told ST. 

While India’s political stability, sustained growth, young talent and an enormous market are magnets that attract capital, foreign investors respond more strongly to speed, predictability and high-level political backing than to a spread of overlapping incentives, he said. 

The survey highlights Vietnam’s Decree 19, a special investment procedure the government launched in 2025 to streamline licensing for high-tech investments with quicker, simpler clearances and defined timelines. This, in addition to industrial zones and an extensive slate of free trade agreements (FTAs), attracts export-oriented manufacturers. 

Similarly, Malaysia’s Golden Pass scheme targets start-up entrepreneurs and venture capitalists as part of its investment strategy, while the Philippines’ Create More Act allows investment promotion agencies to issue special visas to foreign nationals with highly specialised skills.  

Mr Simon Lee, vice-president of the Taiwan Chamber of Commerce in India, said that as labour scarcity and cost grow in some South-east Asian countries, India must “act faster to divert investors towards it”.

One way is by giving longer business visas to Chinese technicians, who are crucial to get factories up and running, he told ST.

India now gives only a renewable six-month business visa to engineers and technicians from China. This visa, too, is part of attempts to revive India-China ties, which have worsened since 2020 over unresolved border disputes, leading Delhi to block most imports, investments and workers from China for several years.

“Such factors as the availability of the best technicians in the world and infrastructure that actually works, end up determining if a contract manufacturer like Foxconn will put an additional factory in Vietnam or India,” Mr Lee said.

“In the past decade, Taiwanese companies looking to invest have compared Vietnam, Cambodia and India. The former two have often won out for quicker turnarounds because they have a lot of developed industrial land and plug-and-play parks ready. India has these, too, but not at the scale and quantity Vietnam has built,” he added.

India’s advantages

He added that India’s vast domestic market and young, trainable labour are its unique draws for manufacturers, and the recent FTAs India has signed with the European Union and Britain and simplified labour codes are “sure to put investors at ease”.

“A lot of FDI went to Vietnam and Cambodia 10 years ago instead of India. Over the next two to 10 years, these investors might shift to Indonesia’s Java if India doesn’t take advantage of the opportunity,” he warned.

Dr Nageswaran acknowledged that India “has to do a lot in a short timeframe” before it is overtaken by other economies, or loses its demographic advantage. In the Economic Survey, he provides a framework to narrow the investor chase down by developing “resilience and indispensability” in strategic sectors rather than diluting limited state capacity and efforts across many areas.

“What you cannot do without, where alternatives are not easily available, one has to indigenise immediately (with state investment) even if temporarily costly. Where there is high urgency or importance but low feasibility, the government has to become extremely active in supporting it,” he said, referring to how India should prioritise strategic sectors and capabilities.

The rest can be done by private companies, for whom private gain is bound with the collective goal of national transformation, the survey notes. It offers examples where corporations become institutional partners in broader national projects, like Bell Labs and IBM in the post-war US, and keiretsu groupings around Nissan, Toyota and Sony in Japan.

Another model offered as an example was Taiwan’s dense networks of small and medium-sized firms embedded in local communities and global supply chains.

“We need to take a leaf out of the book of these successful East and North Asian countries, and monitor to make sure that investing companies use the industrial policy and protection afforded by the Indian government to really become globally competitive,” Dr Nageswaran said.