India’s rise is the big story. So where’s the FDI?

Source: The post is based on the article “India’s rise is the big story. So where’s the FDI?” published in “Indian express” on 3rd October 2023.

Syllabus: GS3- Indian economy- Foreign direct investment (FDI)

News: The article discusses the drop in foreign direct investment (FDI) in India despite its strong economic growth and positive forecasts. While India is seen as a significant player in global growth, issues like policy uncertainty and not being part of major trading blocks may be deterring investors. The decrease in FDI is contrasted by steady investments in competitors like Vietnam and Indonesia, raising questions about the depth and universality of confidence in India’s economic future and its appeal to different types of investors.

Why there is drop in foreign direct investment (FDI) in India?

Economic Growth vs. FDI Trends: Despite a 7.8% growth rate in the first quarter, FDI decreased from $84.8 billion in 2021-22 to $71.3 billion in 2022-23. Equity flows also witnessed a drop from $59.6 billion to $47.6 billion.

Sectoral Declines: Not just tech-focused sectors, but FDI also fell in the automobile, construction, and metallurgical industries.

Comparison with Competitors: Vietnam and Indonesia, which is India competitors in the “China plus one” strategy, have steady or increasing FDI, with Vietnam at $18 billion and Indonesia at $10 billion in 2023.

Policy Uncertainty: Investors face challenges like an unpredictable business environment and fear of sudden policy changes.

Absence from Major Trading Blocks: India is not part of significant trade agreements like RCEP, which can deter investors seeking integrated markets.

Overall, despite its potential, multiple factors make India less appealing to certain foreign investors.