In the face of an overarching decline in foreign direct investment (FDI) into India, experts discern a silver lining in the country’s increasing attraction of greenfield investments. Meanwhile, China experiences its first-ever decline in FDI inflow. The United Nations Conference on Trade and Development (UNCTAD) recently highlighted India’s promising developments in a presentation to the finance ministry, as per reports
India now stands among the top three nations in terms of greenfield FDI announcements, signaling the potential for global capacity expansion and diversification of supply chains. A senior finance ministry official anticipates that these developments will lead to heightened investment flows by the year 2024.
In stark contrast, China has reported its first quarterly FDI deficit during the July-September period. This coincides with a global initiative to reduce dependence on supply chains dominated by China. Policymakers underscore that while India may not be the sole alternative to accommodate the FDI shifting away from China, there are indications of India’s integration into global supply chains.
Bibek Debroy, Chairman of the Economic Advisory Council to the Prime Minister, acknowledges India’s recent engagement in global supply chains. This is driven by efforts to foster an FDI-friendly environment and diminish reliance on China post-COVID.
Former Chief Economic Adviser KV Subramanian perceives an opportunity for India as investors seek alternatives in light of the challenges faced by China. He underscores the importance of continuous structural reforms to capitalize on this trend. “To seize this opportunity, we must persist in implementing structural reforms and finalize the various reforms initiated post-COVID. The window of opportunity for India to leverage this adverse trend is finite,” he asserts.
He highlights that China’s negative FDI figures reflect the structural difficulties in its economy, compounded by significant demographic challenges. China, which once benefited from a positive demographic dividend fueling substantial growth since the 1980s, is now grappling with an unfavorable demographic shift. Additionally, the nation faces substantial issues in its financial sector, characterized by a considerable accumulation of non-performing loans. The real estate sector is also confronting challenges due to considerable oversupply and overinvestment.
Conversely, India has proactively taken measures to stimulate fresh investments in manufacturing, including a reduction in the corporate tax rate to 15%. The country has further introduced production-linked incentive (PLI) schemes across various sectors as part of its efforts to attract funds.
While India witnessed a 34% decline in FDI equity inflows to $10.9 billion in the June quarter, economists attribute this to high interest rates and global economic uncertainty impacting mergers and acquisitions worldwide.
Economists, however, maintain an optimistic outlook for India, distinguishing the challenging short-term horizon from a more promising view over the next three years. Rahul Bajoria, Managing Director at Barclays, acknowledges India’s strong intentions for FDI but notes that higher interest rates are affecting FDI investments both in India and globally.
