Introduction

It is not the first time international trade has faced a challenge, and it won't be the last. But global trade will flourish throughout and new opportunities will appear. Just like it is now. Opportunities are in India.  

The biggest shock in the 21st Century world economy to date was definitely the Covid 19  pandemic. The next big thing is going to be the global trade crisis, stirred up by the tariff moves of the Trump administration. If the pandemic detected the lack of resilience in the existing China-centric global supply chain, the trade tension is compelling us to act on rehauling the sourcing dynamics. The US-China crisis is turning the tide in favour of India, opening up an opportunity for NRI investors in the country. 

Global trade tension and its impact on India  

The United States has always been a proponent of free international trade and maintained zero to low trade barriers with friendly countries. Many developing and middle-income countries have benefited from these decades-long trade practices. The export-led growth of South Asian tigers in the late 20th Century can be attributed to free access to American markets and the inflow of American private capital to those countries. Even China's skyrocketing growth as the world's manufacturing hub in the last 3 decades is a contribution of the American free trade regime.  

However, things are going to change fast as America is no longer ready to allow trade relations that are unfavourable to the US economy. This is the key context to the trade tension that is looming over the world. The Trump administration introduced a blanket 10% tariff along with selective trade barriers on countries enjoying trade surpluses with America. The total tariff on Chinese exporters is 145%, and China has retaliated by a 125% tariff on American exports. Countries like Japan, Vietnam, South Korea and other South Asian countries are also feeling the brunt of tariffs. 

In such a situation, India is emerging as a preferred trade partner. As per the media reports, the country is going to finalize a trade agreement with the USA within 2025. Europe and ASEAN countries are also in the process of signing trade pacts with India to de-risk their supply chain from Chinese dependencies. Negotiations for trade agreements with other countries are also being processed.  

Together, these developments are making India an attractive destination for NRI investments. 

The opportunity for NRI investment in India

Amid the global trade tension, India is emerging as a preferred choice for other countries to diversify their international supply chains. The reasons are too many. 

• Cost advantages against China in AI-led manufacturing 

The primary reason behind China becoming the world's manufacturing hub is its cheap labour. Nearly 3 decades back, China had a huge demographic dividend and a sizable rural population waiting to migrate to manufacturing centres. The average age of the Chinese working population has increased since then, and the labour cost has also increased. Comparatively, India is not only a country with a large working-age population, but the cost of white-collar workforces suitable for managing AI-age factories is highly competitive against China or other potential manufacturing hubs. It places Indian companies at the sweet spot in the evolving global supply chain. Several listed Indian companies are already operational with their automated manufacturing facilities, making their stocks excellent value investment choices. 

• Strong domestic demand 

As a country with a population of 1.4 billion, India already enjoys a strong domestic market. Despite Indian companies' conventional lacklustre export performance, the domestic demand has helped the country post consistent economic growth for the last two decades. The average rate of real growth hovered between 5 to 7%. 

It makes India a top contender among potential supply chain partners for global companies. The domestic market will offer these companies a cushion in terms of extra demand for their products manufactured in India, along with sourcing for global markets. Upcoming free trade agreements between India and the UK, USA and other large economies will accelerate these opportunities, giving way to stronger FDI in Indian companies. Strong FDI inflow means a steady upside in investments in Indian equities, real estate and corporate debts. 

• Government policy boost 

The Government of India (GOI) began its pro-industry policy reforms with the 'Make in India' initiative way back in 2014 when the concept of 'China+1' or supply chain diversification was nowhere in the horizon. It shows the government's strong commitment to making the country a global destination for design and manufacturing. 

The production-linked (PLI) incentive scheme, launched in 2020, is a continuation of similar policy support. The GOI has already disbursed ₹1.97 lakh under the PLI for manufacturers across 14 different sectors. More and more industries are entering the list of eligibility for PLI benefits, giving revenue boosts to Indian companies. This will help Indian equity markets deliver stronger top and bottom-line performances. 

• Favourable exchange rate 

Indian currency is trading at its all-time high against the US dollar and other international currencies. The weaker Indian rupee offers a unique opportunity for NRIs planning to invest in India in USD and hold their investment for the long run. It makes investing in Indian real estate in Indian currency a lot cheaper and affordable. On the other hand, multiple sources expect INR to strengthen from this point or at least consolidate around its current level on the back of strong FDI and FPI inflows. RBI is committed to maintain INR at a stable rate to accommodate India’s ambition of becoming a stronger partner in the global supply chain. Bilateral Free Trade Agreements also restrict opportunities to unilateral devaluation of currencies. So, unlike conventional wisdom, the Indian rupee is unlikely to lose its value significantly (or, at all) beyond its recent lows.  

• Diverse investment options 

Along with direct portfolio investments in Indian equities, the country offers NRIs a wide range of choices to park their money in both INR and foreign currencies. Non-Resident External (NRE) Fixed Deposit, NRO fixed deposits, FCNR fixed deposits, National Pension Schemes (NPS), Mutual funds, public provident funds (PPF) and bonds in India offer the best rate of returns as per the global standards. Real estate investments are witnessing strong momentum on the back of rapid urbanization trends in Indian tier-I and tier-II cities. 

• Strict immigration rules in the USA 

The recent US administration has made it tougher to get work visas or secure permanent residentship. Many Indians living in the USA are reconsidering their long plan of settling down in that country. Long-term investments in India can keep an alternative open against potential future uncertainties around living and working in the USA.  

NRI investment opportunities 

The looming trade war has made India a viable alternative to China's dominance in the global supply chain. The economic, political, and cultural closeness of India to the USA, the EU, and Southeast Asian countries makes the country's position even stronger. The billion-plus Indian population is fueling domestic demand-back economic activities. However, investing in India is not entirely without complexities and risks. A strategic and researched-backed approach with professional guidance is essential for long-term success.  

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