China with India Characteristics

Context: While recently, the Foreign Direct Investments have risen even amidst pandemic, they are challenged by the structural deficiencies and skewed nature.

Background: 

• Government’s pitch to promote India as an alternative investment destination to China.
• Rise in Investments: 

• India has attracted $20 billion worth of foreign investment between April and July 2020- when the global economy has contracted sharply owing to the pandemic — India more than any other emerging market. 
• It accounts for about 27% of FY20’s full-year figure of $73.5 billion is certainly astonishing.

Issues with Investments in India

• Skewed investment:  

• For, E.g. $15-billion that Reliance Industries has attracted to its telecom and entertainment subsidiary Jio Platforms

• Sectoral imbalance- services, IT and telecom account for over a third of inflows. For E. g-Investments by Amazon in its Indian subsidiary and by the venture capital/private equity funding for start-ups.

• Mega greenfield projects: that create millions of jobs have attracted less FDI.

• Inconsistent FDI: While the FDI touched highs of 25% and 23% in FY15 and FY16, due to programmes like Make in India, Start-Up India.

• Later FDI growth declined to 8%, 1% & 2% in FYs 17, 18 and 19 respectively due to various events like the advance deadline for Goods and Services Tax (GST) and demonetization.

• Socialism with Indian characteristics:  high taxation regime and heavy duties and other issues that cause discomfort to investors

• Toyota has been in India since 1997 and has rolled back an expansion plan on account of the heavy levies on what policy-makers see as “luxury cars”.
• General Motors too exited India in 2017 and Ford to move its assets into a joint venture with Mahindra & Mahindra (another way of exiting).

• Structural constraints: on land, labour and capital

• Policy shifts:  related to retrospective taxation non-level playing fields in e-commerce and telecom to rising tariff barriers

Conclusion: Serious structural and policy reforms are needed to attract foreign direct investors that are willing to put their faith in “entrepreneurship with Indian characteristics”.