The new government at the Centre after the national elections ambitiously aims to attract $100 billion a year in gross foreign direct inflows over the next five years, according to Rajesh Kumar Singh, secretary in the department for promotion of industry and internal trade. Earlier at the World Economic Forum summit at Davos, Union information technology minister Ashwini Vaishnaw, too, articulated this aspirational objective. This target compares with an annual average of $75 billion in gross inflows during the previous five years to FY23. The government seeks big-ticket investments in infrastructure to transition to a $5-trillion economy and also attract investors who want to de-risk their exposure to China. India has, according to the secretary, “unmatched market growth opportunity in a variety of sectors such as electric vehicles, electronic goods or general consumer goods where penetration levels in our population are far lower than the global average”.
While the higher level of ambition on FDI is to be welcomed, gross foreign direct inflows, in fact, fell by 3.6% in FY24 up to January when compared to a year earlier. This is far from a one-year blip as it follows the significant decline of 16% to $71 billion in FY23 for the first time in nine years and suggests a different narrative from optimistic official statements that India still remains a leading destination for FDI. More worrying is the fact that repatriations and disinvestments have also increased. After taking these into account, direct investments plunged even sharper by 30.5% to $25.5 billion in FY24 (up to January) as repatriation and disinvestments burgeoned by 36% over the previous fiscal. This is not good news as it indicates waning foreign investor interest; that they are reducing their exposure and even exiting the market. A corroboration of this is the closure of a fifth of foreign companies with offices or subsidiaries between 2014 and November 2021, according to commerce minister Piyush Goyal’s statement in Parliament in December 2021.
The big question is, why all of this is happening? High-profile exits by MNCs like Ford, General Motors, Harley Davidson, MAN trucks, Holcim, Pfizer, Sanofi and GSK — who have trimmed their manpower and operations — may not have a common narrative. In the auto space, the US majors reduced their exposure as their offerings did not find favour among consumers. In other sectors, intense domestic competition, rising costs and concerns about the regulatory environment may have triggered a rethink regarding their strategies. Another plausible explanation could be the fading appeal of greenfield projects, especially by Chinese investors for industrial parks, automobile and steel projects which did not materialise or were shelved due to difficulties in doing business in the various states, regulatory uncertainty, and land acquisition.
Also Read Friends in need: India and South Korea are strengthening ties as geopolitical insecurity grows in the Indo-Pacific Bumps on the road: New BoT terms for highway construction may throw pvt investors into risk-aversion mode Ringside view by Tushar Bhaduri: Mumbai Indians captain Hardik Pandya getting booed at home shows IPL fans want their voice heard The elephant in RBI’s room Boosting the share of manufacturing in India’s economy has been one of the key promises made by Prime Minister Narendra Modi. But if more foreign capital is to be attracted, it is necessary to incentivise a much larger proportion of inflows towards the building of greenfield factories, industrial parks, and other infrastructure. Such investments depend on a stable policy and regulatory framework. Reforms are needed to free up the land and labour markets and improve the overall business environment. Unless this significantly improves, India’s attractiveness as a destination for FDI will reduce, reflected in growing repatriation and disinvestments.
The new government at the Centre after the national elections ambitiously aims to attract $100 billion a year in gross foreign direct inflows over the next five years, according to Rajesh Kumar Singh, secretary in the department for promotion of industry and internal trade. Earlier at the World Economic Forum summit at Davos, Union information technology minister Ashwini Vaishnaw, too, articulated this aspirational objective. This target compares with an annual average of $75 billion in gross inflows during the previous five years to FY23. The government seeks big-ticket investments in infrastructure to transition to a $5-trillion economy and also attract investors who want to de-risk their exposure to China. India has, according to the secretary, “unmatched market growth opportunity in a variety of sectors such as electric vehicles, electronic goods or general consumer goods where penetration levels in our population are far lower than the global average”.
While the higher level of ambition on FDI is to be welcomed, gross foreign direct inflows, in fact, fell by 3.6% in FY24 up to January when compared to a year earlier. This is far from a one-year blip as it follows the significant decline of 16% to $71 billion in FY23 for the first time in nine years and suggests a different narrative from optimistic official statements that India still remains a leading destination for FDI. More worrying is the fact that repatriations and disinvestments have also increased. After taking these into account, direct investments plunged even sharper by 30.5% to $25.5 billion in FY24 (up to January) as repatriation and disinvestments burgeoned by 36% over the previous fiscal. This is not good news as it indicates waning foreign investor interest; that they are reducing their exposure and even exiting the market. A corroboration of this is the closure of a fifth of foreign companies with offices or subsidiaries between 2014 and November 2021, according to commerce minister Piyush Goyal’s statement in Parliament in December 2021.
The big question is, why all of this is happening? High-profile exits by MNCs like Ford, General Motors, Harley Davidson, MAN trucks, Holcim, Pfizer, Sanofi and GSK — who have trimmed their manpower and operations — may not have a common narrative. In the auto space, the US majors reduced their exposure as their offerings did not find favour among consumers. In other sectors, intense domestic competition, rising costs and concerns about the regulatory environment may have triggered a rethink regarding their strategies. Another plausible explanation could be the fading appeal of greenfield projects, especially by Chinese investors for industrial parks, automobile and steel projects which did not materialise or were shelved due to difficulties in doing business in the various states, regulatory uncertainty, and land acquisition.
Boosting the share of manufacturing in India’s economy has been one of the key promises made by Prime Minister Narendra Modi. But if more foreign capital is to be attracted, it is necessary to incentivise a much larger proportion of inflows towards the building of greenfield factories, industrial parks, and other infrastructure. Such investments depend on a stable policy and regulatory framework. Reforms are needed to free up the land and labour markets and improve the overall business environment. Unless this significantly improves, India’s attractiveness as a destination for FDI will reduce, reflected in growing repatriation and disinvestments.
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Targeting $100 billion FDI
12
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10.04.2024
The new government at the Centre after the national elections ambitiously aims to attract $100 billion a year in gross foreign direct inflows over the next five years, according to Rajesh Kumar Singh, secretary in the department for promotion of industry and internal trade. Earlier at the World Economic Forum summit at Davos, Union information technology minister Ashwini Vaishnaw, too, articulated this aspirational objective. This target compares with an annual average of $75 billion in gross inflows during the previous five years to FY23. The government seeks big-ticket investments in infrastructure to transition to a $5-trillion economy and also attract investors who want to de-risk their exposure to China. India has, according to the secretary, “unmatched market growth opportunity in a variety of sectors such as electric vehicles, electronic goods or general consumer goods where penetration levels in our population are far lower than the global average”.
While the higher level of ambition on FDI is to be welcomed, gross foreign direct inflows, in fact, fell by 3.6% in FY24 up to January when compared to a year earlier. This is far from a one-year blip as it follows the significant decline of 16% to $71 billion in FY23 for the first time in nine years and suggests a different narrative from optimistic official statements that India still remains a leading destination for FDI. More worrying is the fact that repatriations and disinvestments have also increased. After taking these into account, direct investments plunged even sharper by 30.5% to $25.5 billion in FY24 (up to January) as repatriation and disinvestments burgeoned by 36% over the previous fiscal. This is not good news as it indicates waning foreign investor interest; that they are reducing their exposure and even exiting the market. A corroboration of this is the closure of a fifth of foreign companies with offices or subsidiaries between 2014 and November 2021, according to commerce........
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