**From Revival to Resilience: India’s FDI-Led Growth Strategy from Budget 2014 to Budget 2026–27**

 **From Revival to Resilience:

India’s FDI-Led Growth Strategy from Budget 2014 to Budget 2026–27**

Abstract

India’s Union Budget of 2014 marked a decisive break from policy paralysis, positioning Foreign Direct Investment (FDI) and public infrastructure spending as central levers for reviving economic growth. Over the subsequent decade, India undertook wide-ranging structural reforms that reshaped its investment climate. By Budget 2026–27, the growth model has evolved toward sustaining high growth with macroeconomic stability, advanced manufacturing, digital services, and people-centric development under the vision of Viksit Bharat.
This paper presents a comparative case-study analysis of Budget 2014 and Budget 2026–27 through an FDI lens, examining strategic intent, policy instruments, sectoral priorities, fiscal stance, and macroeconomic outcomes. It argues that India’s approach has transitioned from FDI as a revival tool to FDI as an embedded component of a diversified, institution-driven growth ecosystem, contributing meaningfully to GDP expansion between 2014 and 2026.

Keywords: FDI, Union Budget, Infrastructure, Manufacturing, Services, Viksit Bharat, India Growth Model

 

1. Introduction: Budgets as Growth Blueprints

Union Budgets in India serve not merely as fiscal statements but as strategic economic roadmaps. The 2014 Budget emerged at a moment of low investor confidence, high inflation, stalled projects, and subdued growth. In contrast, the 2026–27 Budget is presented in a context of relative macro stability, a decade of reforms, and India’s aspiration to become a developed economy by 2047.

This paper addresses the following research questions:

1. How did the role of FDI differ between Budget 2014 and Budget 2026–27?
2. What policy instruments replaced direct FDI liberalisation over time?
3. How did rising FDI contribute to GDP growth and sectoral transformation between 2014 and 2026?

 

2. Conceptual Framework: FDI and Growth Transmission

FDI affects growth through four primary channels:

1. Capital Formation – Supplementing domestic savings.
2. Technology Transfer – Upgrading manufacturing and services productivity.
3. Employment & Skill Formation – Particularly in manufacturing and IT-enabled services.
4. Global Value Chain (GVC) Integration – Export competitiveness and scale.

The Indian case allows a longitudinal analysis of how policy design influences the strength and composition of these channels.

 

3. Budget 2014: FDI as a Revival Instrument

3.1 Strategic Intent

The 2014 Budget’s core objective was growth revival. The economy was recovering from sub-5% growth, high inflation, and stressed public finances. The policy response emphasised:

• Restarting stalled infrastructure projects
• Reviving private investment
• Restoring global investor confidence

FDI was explicitly positioned as a critical external lever.

3.2 FDI Policy Design in 2014

Key measures included:

• Raising the foreign investment cap from 26% to 49% in defence and insurance, while retaining Indian control.
• Liberalisation of real-estate FDI norms, reducing minimum built-up area and capital requirements to attract investment into smart cities and affordable housing.
• A selective and cautious approach—FDI was welcomed, but largely sector-specific and approval-based.

3.3 Sectoral Focus

• Infrastructure: highways, railways, SEZs
• Manufacturing: defence production, insurance-linked capital
• Services: banking inclusion, IT services, tourism (less programmatic depth)

3.4 Macroeconomic Stance

Fiscal consolidation was promised but secondary to growth revival. FDI was expected to finance deficits in infrastructure investment without straining public finances.

 

4. The Decade in Between (2014–2026): Outcomes and Structural Shift

4.1 FDI Scale and Acceleration

• Annual FDI inflows rose from ~USD 36 billion (FY14) to ~USD 80+ billion by the mid-2020s.
• Between FY2014 and FY2025, India attracted USD 740–750 billion, accounting for nearly 70% of total FDI since 2000.
• India crossed the milestone of USD 1 trillion cumulative FDI inflows during this period.

4.2 Reform Complementarity

FDI gains were reinforced by:

• GST implementation
• Labour code rationalisation
• Insolvency and Bankruptcy Code
• Digital public infrastructure (Aadhaar, UPI, ONDC)

These reforms reduced transaction costs, making FDI more productive rather than merely larger.

 

5. Budget 2026–27: FDI Embedded in a Mature Growth Model

5.1 Strategic Vision

Budget 2026–27 articulates “Action over Ambivalence” and “Reform over Rhetoric”, aiming to sustain ~7% growth with moderate inflation and fiscal discipline, aligned with Viksit Bharat

Key Features of Budget 2026-27

.

Unlike 2014, the focus is not on announcing FDI caps, but on optimising returns on investment through institutions, incentives, and risk mitigation.

 

6. Sectoral Architecture: 2014 vs 2026–27

6.1 Manufacturing and Infrastructure

• 2014: Broad infrastructure push; early “Make in India” signals.
• 2026–27: Granular, technology-intensive focus—semiconductors (ISM 2.0), rare-earth magnets, electronics components, aircraft manufacturing, tool rooms, and revival of 200 industrial clusters

Key Features of Budget 2026-27

.

FDI now enters deeper segments of the value chain, not just assembly.

 

6.2 Services as a Core Growth Engine

• 2014: Services acknowledged but not structurally designed.
• 2026–27: Services treated as a primary growth driver, with:
• Medical value tourism hubs
• AVGC labs in 15,000 schools and 500 colleges
• Tax holidays until 2047 for cloud and data-centre services
• Safe-harbour and fast-track APA regimes for IT/ITES

Key Features of Budget 2026-27

.

These measures strongly favour services-FDI and captive global capability centres.

 

6.3 Agriculture and Allied Sectors

• Shift from traditional support to AI-enabled AgriStack, fisheries, horticulture, animal husbandry, and high-value crops.
• FDI complements domestic investment through cold chains, processing, and logistics.

 

7. Fiscal and Macroeconomic Maturity

7.1 Fiscal Discipline

• Fiscal deficit targeted at 4.3% of GDP in 2026–27.
• Debt-to-GDP projected at 55.6%, with a target of 50±1% by 2030

Key Features of Budget 2026-27

.

• Effective capital expenditure rises to ₹17.1 lakh crore, compared to ₹2 lakh crore in FY15.

7.2 Financing Ecosystem

FDI now operates alongside:

• NIIF
• InVITs and REITs
• NABFID
• Municipal bonds
• Infrastructure Risk Guarantee Fund

This diversification reduces over-dependence on FDI while enhancing its catalytic role.

 

8. Impact of Rising FDI on GDP Growth (2014–2026)

Empirical patterns suggest:

• Average GDP growth improved from ~5.5% (2012–14) to ~6.5–7% (2016–26, excluding pandemic shock).
• FDI contributed disproportionately to:
• Manufacturing GVA growth
• Services exports
• Infrastructure multiplier effects
• The quality of FDI improved—more greenfield, technology-intensive, and export-oriented.

FDI thus shifted from being a stop-gap capital source to a structural growth amplifier.

 

9. Comparative Synthesis

Dimension	Budget 2014	Budget 2026–27
Role of FDI	Revival lever	Embedded growth catalyst
Policy Tools	FDI caps & approvals	Tax incentives, safe harbours, institutions
Sectoral Focus	Infra, selective manufacturing	Advanced manufacturing, services, digital
Fiscal Context	High deficit, consolidation intent	Disciplined, rule-based consolidation
Growth Model	Restart investment cycle	Sustain high growth with stability

 

10. Conclusion and Research Implications

The journey from Budget 2014 to Budget 2026–27 reflects India’s transition from FDI-dependence to FDI-integration. While 2014 used FDI to reignite growth, 2026 embeds FDI within a resilient ecosystem of domestic reforms, institutions, and diversified financing.

Future Research Directions

• Sector-wise econometric estimation of FDI-GDP elasticity
• Comparative study with Vietnam and Indonesia
• FDI spillover effects on MSME productivity

 

Teaching Note / Case Use

This case can be used for:

• MBA Strategy / International Business
• Public Finance and Policy

 

Table 1: Projected FDI Inflows into India (USD Billion), 2026–2030

Year	ARIMA Forecast	SARIMA Forecast
2026	36.1	38.7
2027	39.4	41.8
2028	42.7	44.9
2029	46.0	48.3
2030	49.3	52.0

Source for projected values: ARIMA and SARIMA forecasts from a time-series model (historical FDI inflows 2010–2024) published in the Journal of Emerging Technologies and Innovative Research (2025).

 

Reference List

·         Nikam, S. S., & Kothe, S. (2025). Forging a Developed India: Growth Imperatives, Fiscal Sustainability, and Multilateral Partnerships for Viksit Bharat 2047. arXiv. https://arxiv.org/abs/2512.01469

·         Journal of Emerging Technologies and Innovative Research (2025). ARIMA & SARIMA Forecasts of India’s FDI Inflows (2010–2040). JETIR, 12(8).

·         Outlook Business Desk. (2025). India's FDI Inflows Jump 14% in FY25 to $81Bn. Outlook Business.

·         Invest India / DPIIT data (2025). Foreign Direct Investment in India: Trends & sector insights. India Brand Equity Foundation (IBEF).

 

Notes on the Projections

1.      Methodology: The projections are from ARIMA/SARIMA time-series models based on historical FDI inflow data. These models capture trend and cyclical components but do not account for structural breaks (e.g., major policy reforms or global shocks) unless explicitly modeled.

2.      Values Interpretation:

o    ARIMA tends to be more conservative because it weighs recent trends with simpler dynamics.

o    SARIMA adds seasonal adjustments and typically yields slightly higher estimates.

3.      Context: India’s actual FDI inflows hit record proxied levels (~USD 80+ billion in FY25, though reported amounts vary by source and definition) — real-world realizations may exceed these projections if reforms accelerate or global capital shifts toward India.