By Vikas Kaushal & Paul Laudicina

Big, bold promises during an election campaign are usually trumped by political realities once elections are over. But in India’s case, three years into his government, PM Narendra Modi is already delivering on many of the big promises made during the campaign.

One was to increase foreign direct investment (FDI) into India. A key to achieving this was making India an easier place for foreign companies to do business. This included big-ticket challenges such as tackling corruption and streamlining regulatory aspects like different tax regimes in different states.

GoI’s continued efforts on these fronts have helped boost investor confidence in the country. India has jumped up the ranks in the AT Kearney 2017 FDI Confidence Index (goo.gl/wo5Hwo) to eighth place with almost 70 per cent of investors saying that they plan to increase their FDI in the country in the coming years.

If investors do what they say, it means a big boost to the Indian economy. They see it as a vast, diverse, up-and-coming economy that is both a giant market and an attractive production location.

One of India’s biggest attractions is its large domestic market. India is the world’s third-largest economy (at purchasing power parity), which provides an extensive market for consumer goods as well as business-to-business sales.

Given its large size, selling into the Indian market is the most popular type of investment and one can expect to see this reflected in a boom in domestic sales as FDI surges, and consumers’ incomes with it.

Producing in India is the second-most popular form of FDI. Foreign investors are particularly attracted to India’s cost of labour. With 46 per cent of the population being 24 and younger, a large and relatively low-cost labour force will likely persist for years. Many investors also point to the skill level of the labour force as a positive characteristic driving FDI.

This is timely, given that rising labour costs in China are pushing some foreign investors to seek alternative, lower-cost manufacturing centres. Tellingly, global investors in the FDI Confidence Index survey were relatively split on whether China or India has a better investment environment.

India managed to further narrow its gap with China in the rankings this year, down from a gap of seven last year to just five. Greater FDI inflows would generate much-needed employment opportunities for India’s 841 million-strong working-age population.

Such opportunities will be vital in sustaining economic growth in the medium and long term, as about 500,000 Indians reach working age each year. More FDI would benefit the economy through technology transfers, productivity enhancements and greater integration with a global economy that is on an upswing. Though GoI has pushed through reforms, continued efforts are needed before India can be seen as the apple of investors’ eyes.

India’s opaque regulatory environment and prevalence of corruption are the primary deterrents to investing there. Many investors also point to inefficiencies in India’s legal and regulatory processes.

A fundamental headache to the government is the quality of India’s transportation and electricity infrastructure. If serious efforts are made in this area, India will be an even more attractive investment destination.

The good news is that almost all of these negative investment environment factors are directly in GoI’s power to improve. In fact, the government has already taken steps to address some of these business challenges. It has been pursuing an anti-corruption drive, as well as a variety of reforms designed to reduce red tape for businesses.

Modi is continuing to push through reforms to allow greater foreign ownership in several sectors. He has also announced the intent to abolish the Foreign Investment Promotion Board (FIPB) to reduce barriers to entry. However, the most dramatic shift in India’s regulatory environment was the passage last year of a national goods and services tax (GST).

This will create a common market in the country. Implementation of the GST could create some short-term challenges, but it has the potential to foster long-term efficiency gains and economic growth.

Almost two-thirds of the investors in the index are expecting India’s investment environment to improve — and soon. It is now up to the government to deliver on the promises to unlock India’s incredible economic and demographic potential. The results of the FDI Confidence Index show that India has been given one, big vote of confidence that it’s on the right track.

(Kaushal and Laudicina are head of India and chairman emeritus, respectively, AT Kearney)