Foreign Direct Investment

Although the new foreign direct investment policy and other policy packages, including “Make in India,” is expected to tap more foreign savings and better technology and transform the Indian economy into a manufacturing hub, most successful firms are investing abroad. Given this context, this paper makes an effort to understand the trends and nature of outward foreign direct Investment by Indian firms and their implications. The paper argues that though the Indian overseas acquiring manufacturing firms perform relatively better than their counterparts, its adverse impact on the trade deficit and balance of payments need to be tackled.

The growth rate of manufacturing value added has been declining continuously since 2016–17 and it had become negative in 2019–20, even before the intensification of the Covid-19 crisis, suggesting that the budget needs to address the structural weaknesses of the economy. The 2021–22 budget has largely adopted the supply side corrective measures in the form of increased capital expenditure on infrastructure. The potential of infrastructure investment in reviving the sector and the implications of the proposed resource mobilisation for financing the increased capital expenditure are discussed. In the context of increased global fragmentation of production, the feasibility of promoting domestic production through tariff protection is also discussed.

Low demand, high trade costs, poor infrastructure, unstable law and order and the lackadaisical nature of government impede the economic growth of the North Eastern Region. This prolonged underdevelopment points to the urgent need of the NER to integrate with the global economy for faster economic growth. Such an integration and subsequent economic transformation can be made possible through participation in global value chains. The NER has comparative trade advantage in producing labour-intensive products, and participation in services-based GVCs, particularly tourism, can be very profitable for the NER.

The Law Commission of India's 260th report contains a seemingly innocuous suggestion to include a clear clause for consent to arbitrate investment disputes in India's 2015 draft Model Bilateral Investment Treaty. There is an intriguing absence of any explanation for this suggestion, which is curious, especially when viewed in the context of the global public debate on investor-state dispute settlement clauses. This suggestion requires robust public debate in India and must not silently sail past.

Foreign Direct Investment in China A New Perspective Selling China: Foreign Direct Investment during the Reform Era by Yasheng Huang, Cambridge University Press, New York, 2002.