Jump to:
- India’s century as a strategic investment destination
- Consumer spending and trade with India is on the uptick
- Sectors to watch in 2026
- Rising regulatory scrutiny for cybersecurity and data privacy
- AI outlook and opportunities for India
- Key takeaways
India is set to remain a top global investment destination, driven by a large young workforce, growing consumer market, and supportive policies. What’s next for your business with India in 2026?
“Strategic investments and policy reforms are positioning India as a leading economy and hub for innovation and business expansion. Our firm continues to support global businesses as they look to India for their medium- and long-term growth strategy,” says Mini Menon vandePol, Baker McKenzie Head of India Practice.
India’s century as a strategic investment destination
In 2025, global foreign direct investment (FDI) commitments reached "at least" USD 135 billion.1 Prime Minister Modi’s economic reforms have incentivized investment through policies such as the Production Linked Incentive (PLI) scheme, streamlined digital governance2 and investor-positive regulatory changes to FDI limits on specific sectors. Joint Ventures (JVs) with local firms, full ownership via 100% FDI, and phased rollouts that cater to regional diversity remain key entry strategies.
Strategic inbound M&A deal values are rising. 36 of 280 M&A deals recorded in Q3 2025 were inbound,3 including the largest cross-border acquisition in India’s financial sector: Emirates NBD’s USD 3 billion acquisition of a controlling stake in RBL Bank.4 Additionally, Indian Global Capability Centers (GCCs) are becoming strategic partners to their headquarters, and global tech companies are investing a significant portion of capex budgets in India. Microsoft has announced just over USD 20 billion investment to build new data centers with the goal of improving the country’s cloud and AI infrastructure.5
Consumer spending and trade with India is on the uptick
Global brands are also seizing opportunities, with 30 international consumer and retail brands entering India in 2025.6 Surging investor confidence has been matched by robust consumer demand, with fashion, beauty, food and beverage, and lifestyle at the forefront. Increased purchasing power and the rise of premium Indian consumers has placed India as the second-largest consumer market in the world, with consumer spending predicted to rise to USD 4.3 trillion by 2030, almost doubling from 2024’s figure.7
A slew of bilateral and regional trade agreements continues to catalyze India’s rise on the world stage. Most exciting is in relation to the EU Free Trade Agreement where Prime Minister Narendra Modi disclosed on 27 January 2026 that “a big agreement was signed between the European Union and India. People are calling this the mother of all deals. This agreement will bring major opportunities for the public in India and Europe. This is a perfect example of a partnership between two major economies of the world. This agreement represents 25 per cent of the global GDP and 1/3rd of global trade.”
Alongside the FTA, India and the EU have also agreed on a security and defence partnership. The triangulation between trade, geopolitics and governance will undoubtedly set the pace for global trade and offer myriad opportunities for global and Indian businesses alike.
“In terms of a US-India foundational trade agreement, momentum is strong and both governments appear confident about hitting a March 2026 timeline. Still, the success of the deal hinges on resolving complex issues in agriculture, digital policy, and trust,” says Mini Menon vandePol. It appears that the final call now rests with the US President, both on the trade agreement and on the continuation of Russia-specific sanction tariffs that currently apply to India.
India’s exports to the US rose approximately 11% year on year (April to November 2025) and surged 22% in November, with full year FY25 totaling USD 825 billion — poised for further growth through 2026.8 For US businesses, sourcing and manufacturing in India is attractive as geostrategic supply chain diversification continues, amid global tariffs and trade winds.
Sectors to watch in 2026
- Technology and AI: India’s IT sector is pivoting to cloud, cybersecurity, data centers, and generative AI workflows.
- Renewable energy and clean tech: Over 44 GW added in 2025 and strong pipelines in solar, wind, green hydrogen, and grid upgrades.
- Electric vehicles: EV adoption across two- and three-wheelers backed by Faster Adoption and Manufacturing of Electric Vehicles in India Phase-II (FAME‑II), PLI incentives.
- Fintech and digital finance: Deep UPI penetration and increased digital inclusion.
- Manufacturing and infrastructure: Smart factories, industrial IoT, and scale-up via “Make in India,” PM Gati Shakti (Pradhan Mantri Gati Shakti), and semiconductor initiatives.
Aarthi Belani, Baker McKenzie partner, Palo Alto, says, “Scale, talent, and policy are converging to produce the fastest-growing large economy. However, while India’s policies may be strong, addressing certain ‘drags’ on the economy could unlock faster growth.”
Rising regulatory scrutiny for cybersecurity and data privacy
Rapid influx of investment heightens the possibility of attendant enforcement activity, with non-Indian business likely to see more proactive governance. In late 2025, India's released rules to implement its Digital Personal Data Protection Act (DPDA). This is India's first comprehensive data protection law, creating compliance requirements for non-Indian businesses if they handle the personal data of individuals within India.
Sumon Dantiki, Baker McKenzie partner, Washington, DC, notes, “In 2026, India’s growth trajectory is likely to be accompanied by a parallel trend of rising compliance concerns, more enforcement scrutiny, and growing Indian assertiveness around regulating the conduct of global and domestic companies in their market.”
Read more on cybersecurity and data privacy laws.
AI outlook and opportunities for India
India is both a leading developer and adopter of AI, presenting major opportunities for businesses in India or those leveraging India as a base for global AI operations. According to the Stanford University’s 2025 Global AI Vibrancy Index and 2025 AI Index Report, India now ranks third globally, holds around 16% of the world's AI talent, and boasts the highest penetration of AI workforce skills of any nation. 9
Ashlin Perumall, Baker McKenzie partner, Johannesburg, notes, “AI success in India will be defined less by model performance and more by how confidently businesses can explain, manage, and stand behind the systems they deploy.”
Robust governance, accountability, and trust are crucial. India’s sectoral, principles-led AI Governance Guidelines10 articulates the “Seven Sutras,” comprising trust, people-centricity, and innovation over restraint, amongst others. This techno-legal framework combines existing laws with new technical measures, oversight bodies, and sector-specific rules to offer practical safeguards whilst promoting responsible AI development.
Responsible AI governance will increasingly fall to internal players.
Fragmented global regulatory regimes mean that Indian businesses and those doing business in India must keep the following in mind for success.
- Design and implement AI governance frameworks beyond detailed regulatory prescriptions.
- Ensure active board oversight of AI system selection, testing, monitoring, and life cycle governance.
- Stay up to date and compliant with best-practice global governance vis-à-vis fewer regulatory safe harbors in case of failures.
- Prioritize compliance with EU risk classifications, US safety and liability norms, and content controls in other regions due to worldwide deployment.
- Have robust internal documentation, model testing, and data lineage as commercial imperatives.
Key takeaways
- Businesses should capitalize on India’s skilled workforce, favorable reforms, trade agreements, and growth sectors—such as technology and renewable energy—to drive investment, expansion, and operational efficiencies.
- Companies must strengthen compliance measures and implement robust internal AI governance to meet evolving regulatory standards and international best practices.
Footnotes:
4. Reuters
10. India AI.gov
This article is being provided as general information and does not constitute legal advice. Baker McKenzie does not practice Indian law and where Indian law advice is needed, we work closely with top India-qualified lawyers. We’d be happy to discuss your needs in India. For more information, please contact Mini Menon vandePol.