India fails to draw China+1 FDI flows

livemint.com:

NEW DELHI : India’s manufacturing sector has failed to capitalize on multinational companies’ efforts to diversify supply chains away from China, foreign direct investment (FDI) data shows, even as manufacturing continues to shrink at the northern neighbour. Expectations of higher inflows into Indian manufacturing had taken root as China’s purchasing managers’ index (PMI) for manufacturing contracted in seven of the last 12 months, as Beijing struggles to reopen its economy after exiting its controversial zero-covid policy early this year. India’s PMI for manufacturing did not contract in the past year, but against expectations, FDI inflows fell 22% to $46.03 billion in FY23 amid high inflation and recessionary trends in developed economies.

“The ‘China plus one’ story is not confirmed from the investment data. FDI is still pretty subdued," said Biswajit Dhar, professor at Jawaharlal Nehru University. “What we see this year is lower than what we were attracting a few years back.

At a time when China is slowing, if we cannot attract higher FDI, it is a source of concern." ‘China plus one’ refers to global companies’ strategy to expand manufacturing and supply chains to a location in addition to China, where much of it is concentrated now. Madan Sabnavis, chief economist of Bank of Baroda, said India is witnessing industrial stagnation and that companies won’t invest because they are not going to China. The ‘China plus one’ story looks very compelling, but it will take some time before they are convinced, he added.