India’s Distant Dream of Becoming a World’s Big Factory

Context: India should initiate Market reforms and strategize safe exit from lockdown, to become a natural and feasible destination for Multinational National Enterprises (MNES) and attract investment from China.

Factors Restricting FDI Inflow from China to India

• Pro-China Stance of MNEs: 

• 70% of firms in China (in terms of production, broader supply chain optimization) consider exiting China, a very costly and uncertain (in terms of gains) affair.
• Pull factor: China gave foreign firms equal access to any state-support policies that are available to locally owned firms.

• India, not the natural destination: China’s neighbouring countries like Vietnam, Bangladesh are attracting FDI from China because of their geographical proximity with China.
• Department of Industrial Policy and Promotion data: shows decline in inward FDI in India (fiscal year 2018-19) with large investors, unwinding portfolio investments in the country.
• Demand collapse of Indian middle-class consumer: it will restrict FDI inflow despite the presence of  factors like largest domestic market and middle class in the world.
• Cash starved MNEs are contemplating a “China plus one" strategy: keeping a primary presence in China and branching out their secondary operations elsewhere.
• Lockdown conditions and uncertainty over flattening of curve restricts large MNEs to make substantial investments in productive capacity in the country.

India in order to attract investments from China and cater global supply chain, needs to strategise an exit plan from lockdown, and must bring unfinished market reforms agenda.