FDI Flows in Developing Economies
Over recent years, Foreign Direct Investment (FDI) flows to developing economies have been on a declining trend. According to the Global Investment Trends Monitor by UNCTAD, FDI fell by 6% in 2023 and by 2% in 2024.
FDI in India
- Record High: FDI flows in India reached a record high of $84.8 billion in 2021-22.
- Subsequent Decline: In 2023-24, the FDI fell to $71.2 billion, and for the first nine months of the current year (April-December), it was $62.4 billion.
China Plus One Strategy
- Countries like Vietnam, Thailand, Cambodia, and Malaysia have become major beneficiaries of the China Plus One strategy over India.
- Niti Aayog's report highlights India's limited success in capturing this strategy.
Government Initiatives and Economic Strategy
The Indian government is considering easing restrictions imposed on Chinese trade and investments post-Galwan clashes in 2020, potentially facilitating investments by Chinese firms with domestic partners.
- Example: JSW Group acquiring a stake in MG Motors from SAIC Motor.
- Industry push for easing restrictions includes visas for Chinese workers and lifting tariff barriers.
Economic Considerations
The government is exploring options to attract foreign investments amidst global uncertainty, focusing on easing tariff and non-tariff barriers to integrate with global supply chains. The Economic Survey 2023-24 suggests targeting FDI from China to boost exports to the US, similar to East Asian strategies in the past.
Global Trade Dynamics
- With the US escalating a tariff war, it may be strategically beneficial for India to ease restrictions.
- India could benefit from embracing globalization, contrary to Western nations pulling back.
- India’s high GDP growth during the mid-2000s was driven by exports and FDI.
The government is advised to advance policies to welcome trade and investment flows, ensuring sustainable economic growth.
