Despite the China one plus narrative, India Fails to Gain From China's FDI Decline
It's interesting to note that while China's FDI decline has been widely discussed, India hasn't been able to benefit from it. In fact, it's countries like the US, Canada, Mexico, Brazil, Poland, and Germany that have seen their global share in FDI rise significantly. It's clear that China's loss has become their gain.
It seems that India's share of global foreign direct investment (FDI) inflows has decreased despite its efforts to use the China-plus one strategy. In the first nine months of 2022, India had a 3.5% share, which dropped to 2.19% in the same period in 2023, a sharp decrease of 54%. This decline is steeper than the global FDI inflow decline of 26%. According to Business Standard, FDI inflows to China have also fallen dramatically from a share of 12.5% in the first nine months of 2022 to only 1.7% in the same period in 2023. However, the report notes that it is not India but countries like the US, Canada, Mexico, Brazil, Poland, and Germany that have gained the most from China's loss by seeing their global share rise. The US, in particular, has seen a significant increase in FDI inflows in the first nine months of CY 2023, up from 24% in the previous year.
It was the top gainer, possibly due to its semiconductor investments and geopolitical tensions with China. The total approved FDI from Taiwan alone in 2023 stood at $11.25 billion. Apart from the CHIPS Act, the geopolitical tensions between the US and China have drawn many companies from Taiwan and South Korea and other locations to set up manufacturing operations in the US to reduce their dependence on China, the report says, citing OECD data.
A Kotak Institutional Equities report also flagged the situation, noting that India is yet to land a substantial surge in FDI, despite the China +1 narrative and significant reforms. While India has seen success in attracting FDI, particularly in industries like mobile manufacturing, its limited success in industries reliant on assembly line operations suggests a need for further development in the supply chain to attract more investment.
