FDI is now looking beyond China, to India

Written by Saikat Neogi | Updated: Jan 16 2013, 07:25am hrs
Asean countries with strong demographics like India, Indonesia, and Philippines could use foreign direct investment (FDI) to create jobs via more labour-intensive manufacturing, accumulate capital and raise the efficiency and technological level of their economies the way China did in the 1990s to rise as an economic powerhouse.

A report by HSBC Global Research says the Middle Kingdom had a glut of excess rural labourthen around 75% of the populationthat could be shifted into factories to raise productivity. China also needed to improve the skill levels and technology to compete in the global market. The influx of cheap labour into the global economy caused a shift in the global productivity chain and many firms relocated to China to take advantage of the wage competitiveness, a large large market and attractive investment incentives.

But with rising manufacturing wages in Chinabetween 2005 and 2011, wages went up by 20%FDI into manufacturing has decelerated significantly. During January to November 2012, inflows contracted 7%. So, despite all the advantages like convenience of doing business and linkages with the global supply chain, investors are looking at other competitive markets.

By 2020, as India will have a labour supply of around 900 million people, it can become an important destination for FDI inflows. But its restrictive FDI policy, poor infrastructure and cumbersome business environment can put off foreign investors.