Mixed messaging: On India as an investment destination

Context:  The India’s efforts to attract capital will not result in a flood of FDI till investors see policy stability.

About:

• Prime Minister Modi elaborately pitched India as an investment destination that could serve as a manufacturing hub at the heart of global supply chains.
• The pitch made at the S.-India Strategic Partnership Forum comes in the backdrop of the government’s keenness to use the disruptions the COVID-19 pandemic has caused to the cross-border movement of goods.
• It is an opportunity to lure potential investors, especially those looking to relocate from China, to India.
• This track is consistent with recent initiatives to explore supply-chain synergies with other economies, including Japan.
• S. businesses were the ideal target given the worsening relationship between Washington and Beijing and the ongoing trade standoff between the world’s two largest economies.
• Over the decades, it has been established that global FDI investors prioritise and are even willing to pay a premium for policy stability and largely barrier-free access to local and international markets.
• The drive for self-reliance has spurred several Ministries to urge companies and industry sectors to replace imports with ‘Made in India’ substitutes.
• From the Shipping Ministry’s call for the design and manufacture of indigenous tugboats to auto component makers being told to abjure foreign parts, the thrust of the initiative is evidently ‘import substitution’.
• It is hard to imagine any potential foreign investor in manufacturing being ready to source capital goods locally — assuming they are available — even at the cost of possibly compromising on quality or price or both.
• Separately, from the market access perspective, India’s decision to not join the RCEP multilateral trade pact would put investor companies seeking to tap consumers in RCEP member countries at a tariff disadvantage.
• Interestingly, most of the recent FDI announcements have been by way of stake acquisitions in existing businesses, and predominantly in the services sector.
• Attracting FDI into manufacturing will require the government to convince investors that it is committed not merely in words but in deeds as well to an open, barrier-free global trade and investment order.

Reference: https://www.thehindu.com/opinion/editorial/mixed-messaging-the-hindu-editorial-on-india-as-an-investment-destination/article32537617.ece?homepage=true