Opinion

How to sustain the post-Covid surge in FDI inflows

Isha Jaswal |Badri Narayanan Gopalakrishnan | Updated on: May 22, 2022
More room to attract FDI

More room to attract FDI | Photo Credit: bluebay2014

Apart from creating a conducive environment for global investors, the govt must fine-tune its trade and R&D policies

Despite the major slowdown in the global economy induced by the Covid-19 pandemic and the projections of World Investment Report of expected decline in FDI flows of 30-40 per cent, the resilient Asian economies witnessed favourable FDI flows which were rather higher than the global average (UNCTAD, 2020). Additionally, South Asia experienced a robust surge in FDI during this period, with Indian seeing a 27 per cent rise.

‘Make in India’ and ‘Atmanirbhar Bharat’ campaigns coupled with strengthening of India’s footing in global supply chains have given momentum to FDI inflows over the past few years. In 2017-18, the inflows surpassed $60 billion for the first time ever and the Department of Promotion of Industry and Internal Trade (DPIIT) put FDI growth at 14 per cent in 2019-20, the highest in four years.

The first wave of pandemic prompted around 1,000 companies to shift their base out of China, with nearly 300 of them being in the areas of medical and electronic devices, mobiles and textiles. For India, companies like Lava International with over 600 employees clarified its intention to shift its base to India from China.

With Apple’s manufacturing partner, Pegatron, already in place in India, it is expected to infuse $29 billion in the coming years under the Production Linked Incentives (PLI) scheme. Corporate giants like Silver Lake, Google, Facebook, Foxconn, Saudi Arabia’s PIF, General Atlantic Singapore, Hitachi, Walmart and Catterton are also expected to invest billions of dollars in the Indian economy.

Judicious and quick policy initiatives can enhance India’s potential as a global manufacturing hub.

Impact of FDI

Jaswal et al (2022) estimated the impact of expected FDI inflow on macroeconomic variables. The results indicate an estimated increase of 5.68 per cent in India’s GDP. The industrial output of sectors like metals, construction, machinery and equipment, motor vehicle parts, computer, electronics, and optical products are expected to receive a huge boost relative to others.

Exports are also expected to witness a rise, because of the FDI-fuelled increase in scale, quality standards and technology transfer, along with enhanced employment opportunities.

Government policies/decisions are of crucial importance in creating a conducive environment for global investors. The disruptions induced by the pandemic have given opportunities for India to expand its global footprints. The government is striving to strengthen the FDI environment through an array of policy initiatives and reforms at all levels.

The question to ask then is: Can this solve all our economic problems? The answer is, of course, a resounding no. This has to be complemented by a sound trade policy to boost exports further, encourage inclusive development, and incentivise R&D to make our industry globally competitive.

Recent trade policy efforts are resulting in record-high rise in exports, with the list of free trade agreements (FTAs) being negotiated getting extended regularly in a dynamic manner with sufficient safeguards for the domestic industry against unfair import competition.

The last mile delivery of public services has been a conspicuous achievement of the government in recent years. Inroads have also been made in terms of food security and employment guarantee via MGNREGS and the JAM trinity.

The new Science Technology and Innovation Policy (STIP) released in 2021, coupled with numerous technology upgradation schemes and a meticulous focus on green technologies on our path to net-zero are examples on our R&D-related policies.

Jaswal is an Associate Professor at DME University, New Delhi, and Gopalakrishnan is the Lead Adviser and Head, Trade and Commerce, NITI Aayog, New Delhi

Published on May 22, 2022
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