Nagesh Kumar, an economist who currently heads the South and South-West Asia office of the UN Economic and Social Commission for Asia and the Pacific (ESCAP), says the recent announcement of liberalising FDI reforms in nine sectors will make India an attractive destination for investors and that Brexit will have an implication for business houses. The views expressed are personal.
How do you see the prospects of FDI inflows to India? The just launched World Investment Report 2016 of the United Nations Conference on Trade and Development (UNCTAD), has shown that FDI inflows to India increased by 28 per cent in 2015. The early trends from the first four months of this year showed that the increase was continuing with a sharp rise in greenfield FDI announcements, perhaps responding to policy reforms announced in November 2015, when 15 sectors were opened up. All these liberalisations of FDI regime make Indian economy more attractive for foreign companies to set up production bases here and contribute to "Make in India". India is among the most attractive destinations for FDI flows. The World Investment Report puts it at the fourth place in developing Asia after Hong Kong, China and Singapore. The recent liberalisation announced on June 20 opening up nine more sectors to FDI will boost the country's attractiveness further.
Will FDI flows to India increase due to the slowdown in China? China has been a big and important magnet of FDI for many years as the most competitive manufacturing hub. But overtime some of its advantages have begun to erode. The wages have started to rise and the exchange rate has appreciated overtime. China is now trying to move up the value chain — for instance becoming a major production base for machinery, electronics and telecom equipment, including mobile phones. The lower-end of the industry that tends to be labour-intensive is being phased out to other countries. This would be good for India as it has to create productive jobs for 12 million people who join the workforce every year. If jobs are not created for these young entrants it will be a waste. So India needs to take advantage of the opportunity of diminishing edge of China in these industries through FDI and domestic investments.
There is a view that foreign investment may be impacted by Raghuram Rajan's exit from the Reserve Bank of India?