India as a Global Investment Hub – UPSC GS3

India as a Global Investment Hub:
  • India has the potential to become a Global Investment Hub. India’s unique advantages attract global companies to invest in India.
  • In 2020, despite sharp economic contraction, India witnessed the fastest growth in Foreign Direct Investment (FDI) inflows among all the major economies. (>60 billion)
  • Big firms like Google, Facebook, Walmart, Samsung, Foxconn, and Silver Lake made FDI contributions in India.
  • However, India’s latest FDI totals still lag behind other market economies such as China and Brazil.
Why India still lags behind China and Brazil in attracting FDI?
Even after three decades of liberalization (1991), India remains a complex and challenging place to do business because,
  • Frequent shifts in the policy landscape. For example, Retrospective taxation. India lost the Vodafone case and cairn energy case at the Permanent Court of Arbitration.
  • Persistent market access barriers. For example, anti-dumping duty, negative list, mandatory localized procurement, etc.,
  • Government’s push towards “self-reliant” India also created distrust among the investors.
Then, why multinational companies are investing in India?
  • Huge Market: India’s huge market with growing purchasing power makes India an attractive destination for investments. For example, India has a market of 1.4 billion people and a rising middle class of 600 million.
  • Geopolitics: Shift in contemporary geopolitics due to rising U.S.-China competition. It has forced multinationals to reimagine their supply chain and production hubs. For example, Samsung has invested billions in the Indian market.
  • Incentives: Manufacturers such as Cisco, Nokia, Ericsson, and Flex are planning to invest in India to take advantage of India’s incentives in the manufacturing sector.
  • Indian Netizens: Rise of the ‘next-gen netizens’ is one of the key reasons why leading global tech companies are investing in India. For example, India has 700 million Internet users.
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