Will India’s Lower Tariffs Attract More FII Inflows Than Asian Peers?

India’s growing prominence as a global investment destination is catching attention for more than just its economic growth story. One factor that’s increasingly drawing Foreign Institutional Investors (FIIs) is its relatively lower tariff regime compared to other Asian peers like China, Vietnam and Thailand. As global investors scout for favourable markets, India’s cost-effectiveness and investor-friendly approach may just give it the edge it needs.

Lower Tariffs Boost India’s Appeal

Tariffs play a key role in shaping foreign investment decisions. India’s average reciprocal tariff stands at around 26%, notably lower than China’s 34%. This difference matters when investors look at total costs and ease of doing business. Fewer trade barriers mean smoother operations, reduced costs, and quicker returns—factors that make Indian markets look far more attractive.

This can motivate foreign investors to shift or increase their portfolio allocations, particularly in sectors that benefit directly from trade, such as pharmaceuticals, textiles, and manufacturing.

A Shift From ‘Sell India, Buy China’?

Recent months have seen some shifts in investor behaviour. After facing a tough stretch of 15 consecutive weeks of FII outflows totalling ₹1.45 trillion, Indian equity markets witnessed a reversal in late March. FIIs became net buyers once again, signalling renewed confidence.

This comeback raises an important question—could India be witnessing a longer-term shift in sentiment, possibly replacing the narrative of ‘Sell India, Buy China’ with something more favourable?

What Influences FII Decisions?

While tariffs have their role, FIIs often look beyond them when making investment decisions. Earnings growth, economic recovery, currency stability and market valuations are major indicators that carry more weight. For instance, if Indian companies continue to post strong earnings and the overall economic environment remains resilient, FIIs are more likely to pour money into the country.

In this light, lower tariffs may act as a supportive factor rather than the main driver. They can boost investor sentiment, especially in select sectors, but sustained inflows will be determined by India’s growth outlook and financial performance.

External Factors Work in India’s Favour

There are other macroeconomic trends playing in India’s favour. The recent fall in global oil prices helps India reduce import bills and manage inflation, leading to a more favourable current account position. This, in turn, gives the Reserve Bank of India more room to focus on growth without aggressively hiking interest rates.

Conclusion

For India to continue attracting FII inflows at a greater pace than its Asian peers, it will need to ensure policy consistency and keep macroeconomic fundamentals strong. Reduced tariffs have certainly set the stage, but it’s the follow-through on structural reforms, tax clarity, and business facilitation that will drive long-term investor interest.

Moreover, India’s consumption-driven economy offers a buffer against global trade shocks, making it less vulnerable compared to export-heavy nations. This gives investors confidence in India’s ability to weather economic uncertainties, which can act as another pull factor.

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