How FDI Can Unlock India’s Consumption Economy and Power MSME Growth?

​Foreign Direct Investment stands as a crucial enabler for economic development, uniting capital and technology to build robust capacity. Over the past decade, India has widened its FDI policies, especially in strategic sectors like defence, insurance, and single-brand retail. These transformative reforms have successfully attracted record investment levels and enhanced global confidence in India’s long-term growth. Annual FDI inflows have experienced a remarkable surge, more than doubling from approximately $36 billion in FY14 to exceeding $80 billion in FY24. This surge has enabled India to firmly stand among the world’s leading investment destinations.

​As India and its international partners develop new trade alliances, the primary focus is on transitioning towards leveraging trade and investment reforms to enhance competitiveness. Deeper capital flows, enhanced infrastructure, and more robust value chains will help India reach closer to its mark of becoming a Viksit Bharat. These concerted efforts are set to expand production capabilities, boost export volumes, and create more quality jobs across diverse industries.

​How is FDI helping unlock the Consumption Economy in India?

​India’s expanding GDP has catalysed a wave of premiumisation, with consumers actively seeking superior quality and higher-end products. The rapid emergence of digitisation in India has significantly expanded the online marketplace, while vast e-commerce delivery networks have made a wide range of goods available at uniform prices nationwide. This online availability of products is fueling MSME growth as they can now easily access a new and large customer base in rural and semi-urban markets.  

​Parallely, India’s next economic leap will come not from adding production capacity alone, but from unleashing the potential of its consumers. Enhancing aspirations, expanding digital inclusion, and demand from urban and semi-urban areas are reshaping the nation’s growth story. However, to fully realise this commitment, India needs the essential connective tissue that allows goods, ideas, and opportunities to move efficiently from farms to factories and to families.

​FDI, when infused into the right sectors, helps build connective tissue. It provides capital for warehouses and cold chains that reduce waste, systems that formalise transactions, and digital platforms that bridge the gap between small producers and distant consumers, bringing them into the same economy.

​Digital retail operates as a crucial node that  functions as the scaffolding of a modern consumption economy. Deeper capital flows into this sector can convert investment into tangible outcomes: job creation, financial inclusion, and higher productivity. Online marketplaces have already generated 15.8 million jobs in India, including 3.5 million job opportunities for women. These platforms also broaden access to insurance and welfare benefits, thereby offering workers safer and more predictable sources of livelihood.

How is FDI crucial for MSMEs to Access New Markets and Scale Capacity?  

For MSMEs—nearly 1.6 million of whom are now selling digitally, leveraging e-commerce platforms such as Flipkart, Amazon, Blinkit, and Zepto—digital marketplaces significantly lower the cost of reaching customers, simplify compliance, and expand credit access through digital records. They help small manufacturers find buyers for surplus capacity or excess inventory when local demand weakens.

​These platforms also bolster manufacturing growth by connecting small producers to national supply chains and export markets, thereby raising quality and also demand benchmarks. Within these technology-driven ecosystems, MSMEs achieve enhancement in operational efficiency, production scale, and product quality.

​As MSMEs grow through these digital ecosystems, the economy demands more efficient logistics and distribution networks, thereby generating a robust ripple effect.

​India’s logistics sector is currently valued at nearly $9 billion in FY25 and has witnessed an annual growth rate of 12-15% since FY17, driven by e-commerce and MSME exports.              

FDI plays a vital role in achieving this scale and sophistication, enabling domestic capabilities to match global standards. As volume rises, efficiency improves and unit costs fall, developing a cycle that benefits producers and consumers.  

​Why is sustaining reform Momentum important for the Next Growth Phase?

​India is now embarking on its next phase of economic expansion. The utmost priority is to maintain the reform momentum, strengthen competitiveness, attract long-term investment, and eventually build domestic capacity.

​Simplified investment rules allow a major share of this capital inflow to benefit India’s producers and MSMEs. In the MSME sector, as operational costs and complexity decline, more firms can enter the formal economy, which, in turn, helps them innovate, access credit, and scale their operations efficiently.

​India must simultaneously expand its production and unlock its consumption potential. The country’s vast, urbanising consumer base is a key growth engine, with rising purchasing power driving demand that flows through manufacturing, logistics, and retail.

​Foreign Direct Investment (FDI) is vital here, funding capital-intensive logistics such as warehousing and cold chains that cut costs and reduce waste across sectors. As global supply chains shift, India’s scale and digital infrastructure position it for competitive growth. Maintaining open FDI policies will boost job creation, empower MSMEs, and build export-ready manufacturing, making it a cornerstone for a Viksit Bharat.