At a time the government is concerned that private capital expenditures remain subdued to boost the India growth story, there is potential plenty on the investment intentions front. Global investor summits in three states this year resulted in a rich harvest of memoranda of understanding (MoUs) or intentions to invest amounting to Rs 62 trillion. For a sense of perspective, this amounts to four-fifths of gross fixed capital formation in the country as a whole in FY23. Even if a fraction of these are implemented, such investments are bound to be transformative for these three states, two of whom not so long ago were part of the Bimaru grouping in the Hindi-speaking heartland that lagged behind in socio-economic development. The point is that there is a big difference between MoUs and their implementation. They are far from being conclusive. Bridging them depends on the proactive efforts of state administrations to ensure that these proposals bear fruition. These states should do much better than the national average of 54 % for filed industrial entrepreneur memoranda that translated into actual investments till November in 2022 according to SIA statistics of the department for promotion of industry and internal trade. Until then, there is no warrant for boosterism in advertisements in newspapers regarding the MoUs inked and record level of proposed investments.
That intentions to invest are not the same as binding commitments was recently brought home in connection with the world’s leading contract manufacturers, Foxconn’s plans to expand its operations in India. A couple of southern states made announcements that large investment deals with this company have been finalised. One of the state governments even signed a letter of intent with Foxconn after discussions with company officials and visits to potential sites for the intended facility. But Foxconn issued a statement that it did not enter into any “binding, definitive agreements”. However, shortly thereafter, to dispel any uncertainty regarding its statement, Foxconn wrote to this state government reaffirming its plans to set up a facility. The company is also committed to setting up a manufacturing facility in the other state as reported in the Financial Express. No investment numbers have been disclosed. Although Foxconn seeks to de-risk exposure to the dragon due to worsening US-China geopolitical tensions, it indicated last November that it is no tearing hurry to do so; that the bulk of its spending on production facilities will continue to be in China alongside investments in Vietnam, India and Mexico according to the Financial Times.
Translating the record levels of MoUs into actual investments also depends on a more stable policy and regulatory framework. A robust cyclical upswing cannot be set in motion so long as investors, both domestic and foreign, face serious difficulties in doing business on the ground, especially in the various states. Deep-going structural reforms to free up the land and labour markets are needed to boost the overall pace of private-sector-led economic expansion. Such reform also has a crucial bearing on the government’s intent to attract foreign investments that are shifting out of China. For India to be an automatic choice in this regard, it will have to be competitive vis-a-vis Asian rivals with a manufacturing ecosystem and better infrastructure, It is only when these foreign and domestic investments materialise rather than remain intentions that a virtuous spiral is initiated to sustain the growth story.