Also in September, Citigroup executive Manolo Falco told Bloomberg that the New York-based lender was targeting India as one of its top markets to expand in on a global scale.

“India looks very steady and it has a government that seems to know exactly what they have to do,” said Falco, the bank’s global co-head of banking, capital markets and advisory.

Increasing tensions between Beijing and Washington over Taiwan might be leading major Wall Street banks to reassess the risks of focusing on China, but that may not be the sole reason.

But experts said that this might be a growing misconception, and that India has been looking to move away from its protectionist past by introducing key incentives to attract foreign investments.

Reviving trade deals

India recorded its highest annual foreign direct investment (FDI) inflow of US$83 billion last year, and Adani projected these investments would reach US$500 billion over the next 15 years, making the country the world’s fastest-growing destination for FDI.

After a decade of cynicism over free trade deals, India began signing new agreements with countries including the UAE and Australia in 2022 to open access to global markets. India is also in negotiations to sign agreements with the UK and the EU.

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Self-reliance integral

Nilanjan Ghosh, director at the Delhi-based think tank Observer Research Foundation, argues India’s focus on self-reliance in the past few years was important for the country to build its domestic manufacturing base.

This has consequently created a more conducive business environment that will also be attractive to foreign investors, he said.

Amitendu Palit, senior research fellow in trade and economic policy at the National University of Singapore, said the government’s ‘Make In India’ initiative may be incomplete without integration with the foreign economy.

“There is a realisation that while you might not want to get into a complete opening up of a large number of sectors, you are prepared to do that if, through trade agreements, Indian businesses and exports are also getting a beneficial reciprocal access to another country’s market,” he said.

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India also offers other incentives, including an increasingly favourable demographic composition with a median age of 28.7 years, compared to 38.4 for China, according to Pravakar Sahoo, a professor at India’s Institute of Economic Growth.

The country is also creating growth hubs in major cities like Bangalore, known as India’s “Silicon Valley” for housing offices of global technology and financial giants as well as scores of start-ups.

Ongoing challenges

But experts say that there remains work to be done to make India a more ideal investment destination.

According to Palit, there are some areas where Indian regulations are not mature enough, which might lead to hesitation for foreign banks who would have to align their standards to function in line with local legislations.

“For example, India is yet to come out with an overall policy on data regulation and its cross border flows,” he said. “Legislation also needs to be reworked when it comes to subjects like privacy, cybersecurity, and personal information.”

A move to India might be a slow process for Wall Street banks, experts said, and one that might require strong convincing to their partners and investors. These financial firms have also spent a long time building up expertise for China that will not be entirely transferable to the Indian market.

But diversification of supply chains has increasingly been a priority for these companies in the past few years as political tensions and economic risks of working with China grow.

“There’s a lot of unique benefits of the China market and yet businesses in the US and elsewhere need to manage their political and regulatory economic risk, and the best way for them to do that is to reduce their China exposure,” Stone Fish added.