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US-China trade tensions aren't helping FDI in India as expected, says report

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Foreign direct investment (FDI) in India has been declining, even though recent US-China trade tensions and the increasing working population should ideally make the world's fastest-growing economy attractive for investors. This could be because of investors' pre-election nerves and also because of recent protectionist 

Earlier this year, the government announced new rules for e-commerce companies like Amazon and Walmart with respect to FDI to protect the interests of millions of India's small businessmen. Later in February, it was announced that an oil refinery project backed by Saudi Arabia worth $44 billion would be moved from its present place to a new location as farmers opposed the project.

On the other hand, the report noted that the Foxconn Technology Group recently announced that it would start manufacturing Apple's latest models in India. With tension brewing between the US and China, the two largest economies in the world, it may prove to be beneficial for both Apple and Foxconn to move their base to India.

"India definitely needs to attract investments in manufacturing and other sectors. There are huge opportunities for it, with western companies having second thoughts about their Chinese operations. If India could provide an alternative, it would have a great advantage," Vivek Wadhwa, professor at Carnegie Mellon University in Silicon Valley, told the wire agency.

To boost its investment to GDP ratio from 30 percent to 40 percent and see double-digit growth, according to Girija Pande, a former TCS CEO. "We have seen China and East Asian economies grow at such fast rates of growth with that kind of investment levels," he said.

The publication noted that though India's progress is notable as it jumped 23 spots to 77 in the World Bank's ease of doing business ranking in 2019, but old labour laws, long land acquisition processes, red tape and foreign exchange limitations are still in its way. The report said that to grow at over 8 percent, more FDI is crucial.

"It isn't much of a stretch to think that even a partial loosening of restrictions in large sectors like banking or multi-brand retail, could be enough to lift FDI inflows to over 2 percent of GDP from around 1.5 percent currently," Shilan Singh, an economist with Capital Economics (Asia) told the publication.