Rising FDI fails to correlate with Modi’s `Make in India’: study

15 Jan 2018


While the Narendra Modi government's boost to foreign investments in India has helped boost confidence among foreign investors there is little evidence to suggest that the increasing size of FDI has helped push Narendra Modi's 'Make in India' drive.

Modi is expected to eulogise the virtues and benefits of FDI to the economy in his address to the World Economic Forum at Davos, and broaden the definition of medical devices to make room for more foreign investment, a study being conducted by two Delhi-based researchers suggest that the link between the two may not be as strong as the government makes out.

With foreign investor wanting only to establish assembly units and no full manufacturing facility in India, there is nothing to believe that the push for increasing size of foreign direct investment (FDI) flow into the country would make Narendra Modi government's flagship "Make in India" programme a success.

The researchers point out that the cumulative FDI inflows in the make in India thrust sectors had hardly increased during the current tenure of the government as compared to the last two years of the previous regime. In other words cumulative FDI inflow to the thrust sectors did not see any additional momentum as the government suggests after it unleashed a global campaign to promote Indian manufacturing after coming to power in mid-2014.

While India attracted $62 billion as FDI into 'Make in India' thrust sectors in 2012 and 2013, the inflow was $59.8 billion for the same segments during October 2014 to March 2017, the yet-to-be-published analysis notes.

Presenting their initial findings at a workshop organised by Institute for Studies in Industrial Development (ISID), in Delhi, researchers K S Chalapati Rao and Biswajit Dhar point out that even in the case of MII thrust industries in the manufacturing sector, the trend remained the same. While India attracted $ 28.1 billion in MII manufacturing industries between 2012 and 2013, the inflow was $ 19 billion during October 2014 - March 2017 period.

The government had on 27 December 2017 highlighted changes in FDI inflow as one of the key achievements of the Make in India initiative. It had also pointed out multifold increase in FDI inflows in over half a dozen MII thrust areas after the launch of the initiative.

The MII initiative was launched on 25 September 2014 with the objective of facilitating investment, fostering innovation, building best in class manufacturing infrastructure, making it easy to do business and enhancing skill development. The government had also revealed action plans which included policy initiatives, fiscal incentives, infrastructure creation, and ease of doing business, innovation and R&D and skill development, to promote 21 key sectors.

Commerce ministry data show FDI inflows showed significant jump in several sectors like aviation, mining, auto and auto components, electronics and IT, ports and shipping, media and entertainment and textiles under the current government.

While FDI grew six times - from $93 million in 2011-14 to $519 million in 2014-17 in aviation, it grew 5.9 times in mining sector (from $213 million in 2011-14 to $1261 million in 2014-17) and 1.7 times in automobile and auto components (from $3.98 billion in 2011-14 to $6.86 billion in 2014-17).

According to the government's analysis, FDI grew 4.4 times in electronics and IT sector (from $2.77 billion in 2011-14 to $12.24 billion in 2014-17), and 1.9 times in information and broadcasting (from $1.5 billion in 2011-14  to $2.8 billion in 2014-17).

In the case of ports and shipping, FDI grew 6.8 times from $0.22 billion in 2011-14 to $1.5 billion in 2014-17. In textiles and apparel, FDI grew 2.2 times (from $467 million in 2011-14 to $1047 million in 2014-17).

While FDI inflow into the country continues to grow, reaching $160.79 billion between April 2014 and March 2017 - 33 per cent of the cumulative FDI in India since April 2000, the researchers caution that the government data in its current form may not be all that revealing as there are constraints in its collection, classification, which are being pointed out in the upcoming study.

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