India fails to draw China+1 FDI flows
Ravi Dutta Mishra ,
Rhik Kundu
09 Jul 2023, 11:42 PM IST
NEW DELHI : India’s manufacturing sector has failed to capitalize on multinational companies’ efforts to diversify supply chains away from China, foreign direct investment (FDI) data shows, even as manufacturing continues to shrink at the northern neighbour.
Expectations of higher inflows into Indian manufacturing had taken root as China’s purchasing managers’ index (PMI) for manufacturing contracted in seven of the last 12 months, as Beijing struggles to reopen its economy after exiting its controversial zero-covid policy early this year.
India’s PMI for manufacturing did not contract in the past year, but against expectations,
FDI inflows fell 22% to $46.03 billion in FY23 amid high inflation and recessionary trends in developed economies.
“The ‘China plus one’ story is not confirmed from the investment data. FDI is still pretty subdued," said Biswajit Dhar, professor at Jawaharlal Nehru University. “What we see this year is lower than what we were attracting a few years back. At a time when China is slowing, if we cannot attract higher FDI, it is a source of concern."
‘China plus one’ refers to global companies’ strategy to expand manufacturing and supply chains to a location in addition to China, where much of it is concentrated now.
Madan Sabnavis, chief economist of
Bank of Baroda, said India is witnessing industrial stagnation and that companies won’t invest because they are not going to China.
The ‘China plus one’ story looks very compelling, but it will take some time before they are convinced, he added.
India cannot take it for granted that the multinational companies will direct a big chunk of their planned ‘China plus one’ investment to India, Sabnavis said. “Besides, FDI in India is concentrated in a few sectors. A lot of FDI goes into IT and financial services. If you look at the banking sector, I think the limits are already exhausted. There is definitely an opportunity which is there, but more than the pull factor, there is also the push factor," Sabnavis added.
According to Upasana Bharadwaj, senior economist at Kotak Mahindra Bank, the growth in Indian manufacturing has been led by domestic and global demand and private consumption, which have ensured that it remained in the expansion zone.
“At the moment, their (China’s) public investment cycle, property sector, are all underutilized. The credit and the leverage system are also not in place," Bharadwaj said.
Expectations of higher inflows into Indian manufacturing had taken root as China’s PMI for manufacturing contracted in seven of the last 12 months
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