Roll out a red carpet for Chinese investment—but cautiously
In 2021-22, India received its highest foreign direct investment (FDI) inflow of $84 billion. Two years later, that number was down by nearly half to $44 billion. The reasons are both external and internal to India.
Net FDI after subtracting outgoing investment is down 62% to just $11 billion, a 17-year low. The government’s ambition is to reach FDI worth $100 billion every year. This will still represent less than 3% of gross domestic product (GDP) and not even one-tenth of the industrial and economic investment that is needed to take GDP growth to a higher orbit.
A bulk of the investment will continue to be funded by domestic savings. FDI is important not just for the dollars flowing in, but also because it brings know-how, cutting-edge technology and management best practices, even as it helps India plug into global value chains. It also helps improve India’s human capital, thanks to an osmotic effect, increasing productivity as well as competitiveness.
Before the recent decline of FDI, it was on an upward path. The average annual inflow for the past five years is still around $70 billion. This needs to rise to $100 billion.
An economy that promises high growth and a large domestic market can surely do so, but it has to roll out the red carpet for FDI from all over the world. Globally, one of the biggest FDI sources is China, which last year alone poured $148 billion into other economies, the world’s third highest, at a time when global aggregate FDI flows were falling. China today represents a sizeable part of the world’s savings and investible surplus, of which nothing comes to India.
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