Why India could become the next big investment opportunity for the US

Trade relations between the world’s two largest democracies have been, with the current administrations, entering a new era. The nations now collaborate across several commercial and strategic groups, including the Trade Policy Forum (TPF), the Commercial Dialogue and CEO Forum, the Initiative on Critical and Emerging Technology, and the Indo-Pacific Economic Framework (IPEF)¹.

But while the US ranks as India’s third largest foreign investor, there is still plenty of scope for growth – according to the ITC, as the unrealised export potential for US corporates into India tops $30 billion.

Our US-India Trade Corridor Report explores the dynamics of this expanding trading relationship and identifies key sector and regional opportunities, along with certain challenges.

A growth market, ripe for investment

India’s growth trajectory is impressive. It is the fastest-growing major economy, expanding 8.2% FY23/24², and is on track to become the world’s third largest economy by 2030. A rapidly expanding middle class, a population with a median age of under 30, and a burgeoning consumer market are the engines of progress.

And over the past two years trade relations between US and India have significantly strengthened, with President Narendra Modi’s 2023 visit to the US marking a watershed. While there remains no formal Free Trade Agreement, both sides agreed to settle longstanding trade disputes and improve market access, with Modi commenting: “We have taken the India-US partnership on a new journey. This is the journey of Make in India, Make for the World”.³

The visit catalysed several joint strategic initiatives, focused on advanced technology transfers, building more resilient supply chains, and opening the door to bilateral collaboration and investment.

Sector opportunities in South Asia’s giant

In light of this emerging trading landscape, there appear to be four stand-out sectors in the Indian economy with significant potential for US investors and corporates:

• Fintech: With a young, tech-savvy population, and a government committed to boosting digital financial inclusion, India has emerged as a hotbed for FinTechs. This ecosystem, which includes digital payments, lending, investments and insurtech, has huge growth potential. Digital payments, for example, are showing a Compound Annual Growth rate (CAGR) between 2022 and 2025 on track to reach 34%. The overall opportunity size, in terms of Gross Merchandise Value (GMV), is estimated at $46-$50 billion by 2025.
• Semiconductors and electronics: Having become one of the most strategically important sectors over the past couple of years, India is aiming to capture around 10% of the global semiconductor market by 2030⁴ as businesses seek to diversify away from a reliance on China, South Korea and Taiwan. India’s semiconductor industry currently has an annual growth rate of 8.68% and is estimated to reach $8.32 billion in 2024⁵. To meet its 2030 target, the government has launched initiatives like the National Electronics Policy and the $10 billion Production Linked Incentive (PLI) scheme for semiconductor manufacturing, while the 2024 budget included the creation of a $12 billion innovation corpus to prompt R&D.
• Healthcare: India’s nascent digital healthcare sector is expanding at pace with a 41% CAGR between 2022 and 2025 and an expected opportunity size (GMV) of up to $5bn in 2025. The implementation of the National Digital Health Blueprint^⁶, which aims to create a digital infrastructure for providing healthcare services across the country over the next decade, has been projected to unlock over $200 billion in incremental economic value⁷ for the country’s health sector. In the physical space, the greater penetration of healthcare insurance across the country is driving demand for a wide range of products and services.
• Pharmaceuticals: India’s pharmaceutical industry is estimated to reach $130 billion by the end of 2030 and $450 billion by 2047.⁸ With more than 10,500 pharmaceutical manufacturing facilities, India accounts for 20% of the global⁹ supply chain and, crucially, it has highest number of manufacturing facilities that comply with US regulations. It is also the global vaccine hub, supplying around 60% of global demand for vaccines.¹⁰

Investors should keep an eye, too, on key subsectors. With an export gap from the US of $8.5 billion, jewellery and precious metal articles top the list. Other opportunities include motor vehicles and parts, machinery and chemicals.

Understanding where to invest: Tier 1 vs Tier 2 cities

India’s eight Tier 1 cities are key drivers of growth, contributing 50-60% of GDP. However, Tier 2 cities look increasingly attractive thanks to an influx of local and overseas companies. Some, like Jaipur, have the status of Special Economic Zones and can offer foreign investors tax incentives and simplified regulations.

Potential investors should be aware that India’s federal system of government results in significant variations in political leadership, governance, and economic conditions across its 28 states and 8 union territories. Companies looking to capitalise on India’s growth story must also navigate a complex tax and regulatory system. However, many of these issues are now being addressed at policy level.

India’s growth story is a compelling one for US companies looking to expand their global footprint. As the two nations’ strategic and commercial interests become increasingly aligned, the time is ripe for corporates to find the ‘sweet spots’ in this dynamic, diverse environment.