India missing out on investment boom from US-China trade war as election looms

By: |
Updated: February 26, 2019 8:31:21 AM

Unlike Southeast Asia, India isn’t seeing any investment gains as global trade tensions disrupt supply chains. Foreign direct investment in the third-largest Asian economy fell 7 percent in the nine months to December, signaling slowing investment before upcoming elections.

India missing out on investment boom from US-China trade war as election loomsIndia missing out on investment boom from US-China trade war as election looms

Unlike Southeast Asia, India isn’t seeing any investment gains as global trade tensions disrupt supply chains. Foreign direct investment in the third-largest Asian economy fell 7 percent in the nine months to December, signaling slowing investment before upcoming elections.

FDI inflows into India during the period was $33.5 billion, lower than the $35.9 billion in the year-ago period. The fall was more prominent in manufacturing sectors.

That should be a concern for Prime Minister Narendra Modi as he seeks a second term in office in polls due by May. He had swept to power in 2014 with the biggest victory margin in 30 years after promising to make India a hub for manufacturing and create jobs for 10 million people every year.

READ ALSO | Anil Ambani hasn’t given up: RCom still fighting to sell spectrum outside bankruptcy

Global headwinds and political uncertainty spawned by the upcoming elections are seen as reasons why investors have chosen to remain on the sidelines.

“India is now in an uncertain state politically,” said Indira Rajaraman, an economist and a former member of the Reserve Bank of India’s board. “The climate here won’t encourage companies to make long-term investments for the time being.”

Trade War

The decline in foreign direct investment in India is in contrast to the boom seen in its southeast Asian peers. Vietnam, Thailand, Philippines and Malaysia are seen poised to benefit from the trade tension between the U.S. and China, as companies seek to re-work supply chains threatened by tariffs.

“Philippines and other Southeast Asian countries have been steadily setting themselves up, inviting foreign investment,” said Rajaraman. “An open door policy makes them more attractive at this juncture.”

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1Trend reversal: Bank lending rates, bond yields begin to converge
2Opposition ganging up as they can’t loot taxpayers’ money anymore, says PM Narendra Modi
3Nearly 2 crore jobs created in 16 months to December 2018, says CSO report