India holding up on the FDI front
FDI spiked in October on a surge in inflows and low repatriation. It is too early to see in the October performance a reversal of a weak trend for the financial year. The languor is on account of global investment being depressed in a fragile economic recovery.
India is holding up in this context, being among the top draws for FDI as its economy offers stable medium-term growth and incentives to reshore global supply chains. PLIs for manufacturing exports have seen mixed results, and GoI is using learnings from the success of industries like mobile handset manufacturing to rope in investments into other selected sectors. But it is early days for FDI to ratchet up to levels required by a global manufacturing base.
Investments are still being principally pulled in by the Indian market opportunity, not the global one.
This situation could change rapidly, though, with FDI into China having stalled this year as companies review their global investments. There is a small window during which manufacturing supply chains will be rewired, and India is among a clutch of emerging economies that have positioned themselves as candidates in a 'China Plus One' model. It is trying to catch up in infrastructure and logistics.
However, it is disadvantaged by its import tariffs. A reset of FDI for supply resilience is likely to favour economies with a deeper connection to existing vendor chains, which are predominantly Chinese. India's experience with developing an indigenous ecosystem for electronics manufacturing bears this out as well.
But GoI has done its reshoring groundwork and the results will be on display once the global investment cycle turns.
