Is ‘Make In India’ Hindering India’s Progress?

India’s challenging business environment and high import tariffs are restricting FDI inflows, jeopardizing the target of attracting USD 100 billion annually from 2024 to 2029, especially amidst declining regional investment trends.

Key View

• India’s ability to attract FDI inflows is limited by the state of its business environment, and we believe, its high import tariffs.
• The resurgence of protectionism around the world will further limit India’s ability to attract foreign capital.
• As such, we doubt policymakers will be able to achieve their aim of increasing average FDI inflows to USD100bn per year over 2024-2029.

We argued in a recent piece that India is unlikely to replicate the catch-up growth successes of the Asian Tigers. Part of our justification was that India is unlikely to mobilise sufficient investment to build the necessary infrastructure. To be fair, Indian policymakers are well aware of the investment gap. Part of their answer has been to aim to increase average FDI inflows to USD100bn over 2024-29, from USD70bn over 2019-2023. We doubt they will achieve this goal. 

Foreign direct investment (FDI) flows into Asia have broadly been declining since the pandemic began, with the only notable exception being Vietnam (see chart below). India by contrast, suffered the second largest fall (56% from its peak in 2020) in inflows after Mainland China (83%).

Make in India: A Double-Edged Sword

Launched in 2014, the “Make in India” initiative aimed to transform India into a global manufacturing hub. While the campaign has succeeded in some aspects, it has also drawn criticism for potentially hampering economic progress. The overemphasis on domestic production can lead to protectionist policies, creating barriers for foreign investment and innovation. This focus on self-reliance risks isolating India from global supply chains, which are essential for technological advancement.

Moreover, the initiative’s implementation has faced challenges. Bureaucratic red tape, inadequate infrastructure, and varying state policies can create a lackluster environment for businesses to thrive. Entrepreneurs often struggle with excessive regulations, which stifle creativity and limit the agility needed to adapt to changing market demands. In turn, this hinders India’s ability to attract foreign direct investment that could stimulate growth and create jobs.

Ultimately, while “Make in India” promotes the idea of local manufacturing, a balanced approach that embraces globalization and collaboration with foreign companies may better serve India’s long-term economic interests. Encouraging both domestic and international investments can lead to innovation and sustainable growth, transforming India into a competitive player on the world stage without imposing undue restrictions on its economic potential.

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