The government has been continuously introducing measures to attract foreign investors to set up their businesses in India, but the global brands have not shown much enthusiasm for the Indian market.
Foreign Direct Investment (FDI) in the manufacturing sector in the last two financial years has been lower than what it was in the preceding years since Narendra Modi led government came to power. Ambitious schemes such as ‘Make in India’ and improvement in the ‘Ease of Doing Business’ ranking also did not help much to boost FDI in the Indian manufacturing sector, the data shows. US-China trade war and other geopolitical tensions have played an important role in weakening global demand.
The government has been continuously introducing measures to attract foreign investors to set up their businesses in India, but the global brands have not shown much enthusiasm for the Indian market. Now, with the announcement of the permission of 100 per cent FDI in contract manufacturing, the investments are likely to surge in the manufacturing sector, the government believes.
FDI in the manufacturing sector remained $9.6 billion in 2014-15; $8.4 billion in 2015-16; and $11.9 billion in 2016-17. But thereafter, it failed to cross $8 billion mark in the next two years, according to RBI. Major changes in domestic political and economic policies such as demonetisation and GST also contributed to the uncertainty for foreign investors in establishing a new business in India. Consequently, at $7 billion, manufacturing FDI in 2017-18 remained weakest since 2014-15.
The index of industrial production (IIP) growth decelerated to a 3-year low of 3.8 per cent during 2018-19, driven by a deceleration in manufacturing. “For India, export volumes moderated in spite of a modest real depreciation, showing that it is external demand that is the key determinant of export performance,” said the latest RBI annual report.
However, the FDI in financial services and electricity have improved over the last two years. Cumulative FDI in India grew at a pace of 25 per cent and 23 per cent in FY15 and FY16, but it reduced its pace to 8 per cent, 1 per cent and 6 per cent in the three succeeding years till FY19.