From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Providing alternative investment destination to China and policy changes in India
The article examines whether India has been proving a favourable alternative to China or not.
Is India becoming alternate supply source and investment destination?
- Despite media reports and strong messaging from Washington, fewer U.S. companies than predicted might quit China.
- Companies focused on the Chinese domestic market rather than as a base for exports will likely remain, at least for now.
- Those that do leave may not choose India as a relocation destination.
- Many U.S. companies with experience working with China are not convinced that India has China’s established industrial base and expertise.
- They also see other Asian countries as more competitive.
- Democracy: India’s identity as a democratic “un-China” is one of its strongest selling points.
- Strong IPR: There is no threat of stealing of intellectual property rights.
- No coercive tactics: Foreign companies in India are not subject to coercive tactics as in China.
- Institutions: India’s open and vibrant press, an independent judiciary, and other advantages of democratic governance also provide a contrast to China.
- Domestic market:India’s well-off domestic market also attracts foreign investors.
Why China is a favoured destination
- China offers many advantages, such as a manufacturing infrastructure and skill level that allows innovations to move quickly from prototype to product.
- China’s specialised industrial zones are massive, collocating companies, factories, logistics, and even research and universities.
1) Focus on the States
- India can start by focusing development in those Indian States that have already demonstrated the ability to produce and export in key sectors.
- Foreign capital could also greatly increase infrastructure funds beyond government spending alone.
- India might also usefully build up new industrial centres with an eye to geography. [for instance-linking the southeast of the country to supply chains in Southeast Asia]
2) Focus on the policy framework
- India should take two great steps-
- 1) Reduce the number of investments needing approval by the Centre.
- 2)To increase intra-Ministry coordination on foreign direct investment policies.
- The same coordination could be extended to the appointment of a high-level official or body in the Prime Minister’s Office.
- This will ensure that all proposed economic policy changes are consistent with the goal of attracting foreign investment.
A policy framework that is transparent, predictable, and provides increased consultations with existing and potential foreign company stakeholders before introducing new Indian economic policies, will play a crucial role in determining India’s foreign investment outlook.