Answer:

India’s performance in attracting Foreign Direct Investment (FDI), particularly in the manufacturing sector, has seen mixed results. During the global shift of firms from China due to geopolitical tensions and supply chain realignments, India emerged as a potential alternative. However, despite initiatives like Make in India and Production Linked Incentive (PLI) schemes, India’s share of global manufacturing FDI remains modest compared to competitors like Vietnam and Thailand.

India’s Performance in Attracting FDI:

• Government Initiatives to Boost FDI: India launched Make in India in 2014 to attract FDI in manufacturing, focusing on sectors like electronics and automotive.
  For example: Apple is expanding  its iPhone manufacturing in India, contributing to the PLI Scheme’s success in the electronics sector, aiming to make India a manufacturing hub.
• Impact of Global Firms’ Retreat from China: The global China Plus One strategy allowed India to capture FDI as firms diversified operations.
  For example: Samsung shifted parts of its smartphone production from China to India, benefiting from the world’s largest mobile phone manufacturing unit in Noida.
• Sector-Specific Growth: India saw growth in sectors like pharmaceuticals and automobiles, aided by policy reforms.
  For example: Mercedes-Benz expanded its local assembly operations in India, contributing to increased FDI in the automobile sector
• Performance in Manufacturing vs Services: While India struggled with manufacturing FDI, its services sector thrived.
  For example: Companies like Amazon and Microsoft established global capacity centers in India, contributing to the country’s growing services exports rather than manufacturing output.

Challenges in Increasing FDI Inflows:

• Infrastructure Bottlenecks: India’s weak infrastructure hampers its competitiveness in attracting FDI.
  For example: Poor port connectivity and logistics networks increase costs, discouraging investments in sectors like heavy manufacturing and electronics.
• Regulatory Complexity: Bureaucratic hurdles and inconsistent regulations deter investors.
  For example: The ongoing Vodafone tax dispute highlighted India’s unpredictable tax policies, raising concerns about legal certainty among foreign investors.
• Labor Market Rigidities: India’s labour laws are considered restrictive, impacting the manufacturing sector.
• Comparative Disadvantages with Competitors: Countries like Vietnam offer better ease of doing business and faster clearances.
• Political and Economic Stability: Policy inconsistency and economic disruptions like demonetization affect investor confidence.

Way Forward:

• Streamlining Regulatory Approvals: Simplifying processes and creating a single-window clearance system would enhance FDI inflows.
  For example: The government’s initiative of Gati Shakti focuses on improving infrastructure and logistics to create a seamless investment environment.
• Upgrading Infrastructure: Investing in ports, roads, and digital infrastructure will improve India’s attractiveness.
  For example: The development of the Dedicated Freight Corridor aims to reduce logistics costs, making India more competitive in global manufacturing.
• Labour Market Reforms: Modernising labour laws and creating a more flexible environment will attract FDI.
  For example: The introduction of four labour codes seeks to simplify labour compliance and improve productivity in the manufacturing sector.
• Leveraging Trade Agreements: Signing bilateral and multilateral trade agreements can help India integrate into global supply chains.
  For instance: India’s engagement with the EU for a free trade agreement can boost FDI in sectors like textiles and automobiles.
• Promoting Skill Development: Investing in skill development programs will help address the skilled labour shortage in India.
  For example: Skill India Mission aims to train over 400 million workers in sectors critical for attracting manufacturing FDI.

To effectively capitalise on the global shift from China and enhance FDI inflows, India must address its infrastructure, regulatory, and labour challenges while promoting a more consistent and predictable policy environment. By adopting flexible, investor-friendly reforms, India can become a global hub for sustainable manufacturing, ensuring long-term growth and competitiveness in the international market.

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