The message that went out at the recently held Global Investor Meets in Gujarat and Tamil Nadu was unmistakable – that India is a big investor draw as the fastest growing economy with impressive fundamentals, besides offering political and policy stability.

The ‘vibrancy’ of the State-level GIMs must be viewed against the context of India positioning itself as a China plus one supplier, as well as a country equipped to run new-age industries ranging from AI and EVs to renewables. To this end, it has rolled out performance linked incentive policies across 14 sectors. Therefore, the Gujarat summit led to MoU’s worth over ₹26-lakh crore ($313 billion) being signed, while Tamil Nadu inked MoUs of about ₹6.6-lakh crore (about $80 billion). To place these figures in perspective, Gujarat has garnered FDI worth $34 billion over four years till September 2023, in third place after Maharashtra and Karnataka which have drawn FDI amounting to $62 billion and $47 billion, respectively, over this period. Tamil Nadu has seen an investment of $9.9 billion, and is at fifth place. While it is true that just a fraction of these expressions of interest translate into actual investment, there can be no denying the overall rise in the interest quotient, even if perhaps less so in Tamil Nadu’s case.

The proposals point to an ‘agglomeration process’. The proposals for Tamil Nadu and Gujarat tie in with their traditional strengths, be it auto, electronics and leather in the case of the former or petrochemicals, textiles and auto with respect to the latter. There are two stand-out features of FDI equity flows into India since 2000: first, they have been concentrated in peninsular India and second, they have been driven by quite the same sectors. The two factors are linked, as sector-specific capital prefers regions with existing competencies. Over 80 per cent of the total FDI in the last four years has gone into five States: Maharashtra, Karnataka, Gujarat, Delhi and Tamil Nadu. Tamil Nadu appears to have lost some of its pre-eminence; Chennai was in third place after Mumbai and Delhi between 2000 and 2015. While FDI flows have gone up impressively from about $45 billion in FY15 to $85 billion in FY22 and then falling to $71 billion last fiscal, their composition since FY05 has changed only slightly. Computer software accounts for 20 per cent of FDI flows since 2014, against 6 per cent in the preceding 14 years. Financial services remain the main drivers, accounting for 16 per cent of FDI equity flows in the 2014-23 period, against 18 per cent earlier. There is a growing interest in non-conventional energy, pharma and education.

Studies have shown that per capita income plays a role in choice of investment destination, as does the cost of labour, its skill-sets, availability of power, land, logistics, natural resources and above all, efficient governance. The poorer northern States need fiscal support to usher investment into sectors hitherto untapped. But they must create the infrastructure, of which there fortunately are some signs.