No FDI love? Apple, Amazon show 2 faces of India's quest to lure investment

India definitely needs to attract investments in manufacturing and other sectors.

As the US-China trade war triggers the biggest rethink of supply chains in a generation, the world’s fastest-growing major economy with hundreds of millions of young and cheap workers should be atop the list of potential beneficiaries. And yet India isn’t getting such love, with foreign direct investment actually declining over recent months.

That’s a riddle partly explained by pre-election caution as investors move to the sidelines while Prime Minister Narendra Modi’s ruling Bharatiya Janata Party squares off against the opposition Indian National Congress. But the other explanation lies in the recent past, with local opposition and politically-inspired protectionism getting in the way of investments.

In February, e-commerce firms like Amazon.com and Walmart Inc.-owned Flipkart were slapped with proposed new rules that would raise their costs as Modi sought to protect the nation’s millions of mom and pop stores. That same month, it was announced that a proposed $44 billion oil refinery backed by Saudi Arabia would be relocated after farmers opposed the project and refused to hand over land (a new location has yet to be named).

So while there are successes -- such as Foxconn Technology Group’s recent announcement of plans to mass-manufacture Apple Inc.’s latest handsets in India -- tales of frustrated plans and bureaucratic bottlenecks are holding India back from a China-1990s-style boom.

“India definitely needs to attract investments in manufacturing and other sectors," said Vivek Wadhwa, distinguished fellow and professor at Carnegie Mellon University’s College of Engineering at Silicon Valley. “There are huge opportunities for it, with western companies having second thoughts about their Chinese operations. If India could provide an alternative, it would have a great advantage.”

Girija Pande, the Singapore-based chairman of Apex Avalon Consulting Pte. and a former chief executive officer of Tata Consultancy Services Ltd, says India needs to boost its investment to gross domestic product ratio to 40 per cent from 30 per cent if it has to achieve double-digit growth. “We have seen China and the East Asian economies grow at such fast rates of growth with that kind of investments levels," he said.

For now though, that’s a long way off. FDI fell 7 per cent to $33.5 billion in the nine months to December from a year earlier.

Policy makers in India do realize the need to step up the pace of FDI and have pushed through reforms to try to attract it.

Business Standard