Mixed messaging: On India as an investment destination
Paper:
Mains: General Studies-III: Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management
Context:
The Article is about India’s efforts to attract capital and investment through FDI
Background:
- In his recent address to the S.-India Strategic Partnership Forum, the Indian Prime Minister pitching India as an investment destination called for higher foreign investments into India.
- The PM laid out a vision of making India a manufacturing hub at the heart of global supply chains.
Significance of the move:
- The worsening relationship between the U.S. and China and the ongoing trade stand-off between the world’s two largest economies present a unique opportunity for India to woo U.S. investors and multinationals looking to shift from China to set up their bases in India.
- Even if a few multinational enterprises can be drawn to set up manufacturing bases, either by shifting facilities or as new additional plants, this would benefit the Indian economy through increased FDI, new jobs and higher tax revenue for the government.
- There is also strategic significanceinvolved in the pitch given the escalating border feud between India and China and India’s economic and trade ties with China.
‘Aatmanirbhar Bharat’ initiative:
- The article argues that the government’s recent ‘Aatmanirbhar Bharat’ initiative, of making India more self-reliant, would send a wrong signal to the foreign investors.
- Several ministries have urged companies and industry sectors to adopt the policy of ‘import substitution’- to replace imports with ‘Made in India’ substitutes. This could be perceived by the foreign investors as undesired regulation, as they too could be asked to source capital goods locally.
- Global FDI investors prioritise policy stabilityeven at the cost of lower profits and favour largely barrier-free access to local and international markets.
RCEP:
- India’s decision to not join the RCEP multilateral trade pact is being viewed negatively by the foreign investors as this would put investor companies seeking to tap consumers in RCEP member countries at a tariff disadvantage. This would restrict their market accessin these countries.
Some Statistics:
- Between April-July 2020, the Foreign Direct Investment (FDI) into India stood at $20 billion.
- Despite the good inflow of FDI even during the time of COVID-19 into India, there continue to remain concerns over the nature of the FDI inflows into India.
- Most of the recent FDI announcements have been by way of stake acquisitions in existing businesses, and predominantly in the services sector. These do not produce other desirable outcomes that are expected with FDI like the inflow of better technology and the creation of additional employment opportunities.
- The FDI into manufacturing has been comparatively low.
Conclusion:
India’s efforts to attract capital will not result in substantial FDI flow until investors see policy stability.