Make In India campaign led to a surge in investment by domestic private investors in the first year of the Modi government. In 2014-15 new investment announced by domestic private sector increased by 128 percent. But the upsurge in the domestic private sector investors’ mood collapsed in the second year of the Modi government. During April-December 2015, new investment announced by domestic private sector investors dropped by 39 percent over the preceding period in 2014.

In contrary, FDI registered a sustainable and increasing growth in the first two years of Modi government. In 2014-15, FDI surged by 27.2 percent and made a boom in April-December 2015 by 40.0 percent over the preceding period in 2014.

There are several factors, which are attributable to the converse relations between the domestic and foreign investment trend. The euphoria sparked by Modi growth model and assurance of ease of doing business triggered the domestic investors’ zeal to invest. But, soon it faded in the second year by the slow pace of reforms and tight monetary policy. The three reforms, land, labour and GST, which were important to boost investment promotion, were put off in the wake of minority strength in Rajya Sabha. However, GST made some progress but uncertainty looms still. Expectations were high for final announcement of GST application in this Budget for 2016-17. But, the hopes belied with the Finance Minister’s silence on GST. Further, RBI’s reluctance for softening tight monetary policy, despite fall in inflation, disheartened the domestic private investors.

The factors, which attributed to the surge in foreign investment and proved Make in India campaign an attraction to the foreign investors, was the global financial and economic turbulence, triggered by China’s growth slump and bubble burst. China’s economic growth plunged from double digit to less than 7 per cent within three years in 2015, lower than India. China’s fall in growth and bubble burst had cascading impact on the emerging economies (except India), who were hitherto the potential investment destinations for the foreign investors.

China is pivot to five major Asian NIES growth (Singapore, Malaysia, Indonesia, Thailand and Vietnam). The economies of these five major Asian NIES are export base, essentially because of low domestic demand, owing to small demography. China is the top export destination of these Asian NIES. About 10-12 percent of the exports of five major Asian NIES go to China. The backlash of China’s slow growth and bubble burst had ripples on FDI in Asian NIES. In 2014, excepting Singapore and Indonesia, FDI in Malaysia and Thailand posted negative growth and in Vietnam, it increased marginally by 4 percent. In contrast, India posted a boom in FDI, proclaiming an attractive destination for foreign investment.

The fall in Chinese growth and its ripple on Asian NIES leveraged the FDI opportunity in India. Given the large domestic demand and sound financial stability, India emerged a bright spot for the foreign investors, amidst the global economic turmoil. It was catalyzed by Make in India movement, which embraced opening up of crucial areas to the foreign investors and ease of doing business. Modi government opened up and liberalized defence, insurance, constructions, plantation, private sector banking, civil aviation, satellite establishment and operation and credit information companies to the foreign investors. Defence was the driving force for the boost in foreign investment in India during Modi government. During October 2014 to June 2015, government issued 56 defence manufacturing permits to private sectors, including foreign investors, as compared to 47 licences granted in the preceding three years.

India is heading for a big push in transformation in the manufacturing sector - from conventional manufacturing based on natural resources ( such as textile and agro-based ) to value-chain base manufacturing ( such as electronics, computer , mobile and automobile). These transitional changes will be the driving forces for FDI attraction in India. For example, India is the second largest mobile phone users in the world. But, the industry is import intensive with 70 percent of mobile phone demand being met by imports. A number of foreign players are envisaging to play major role by setting up their manufacturing plants in India. Foxcom – world’s largest contract manufacturing and Vivo –a Chinese major- entries in India and Samsung’s gushing flow of investment in mobile and smart phones are the cases in point. Foxcom has decided to invest over US $ 5 billion in manufacturing mobile phones in India. Another electronic giant Lenovo – the US$ 46 billion hardware major- was emphatic that India will be growth engine for its computer. Its Chairman Yang Yuanqing said that it would produce all computers and smart phones sold in India , which would be made in India.

These examples exhibit a positive momentum created by Make in India and its impact on foreign investment, which contradicts the domestic private investors who were apprehensive for lackluster reforms. Foreign investors were unperturbed by the slow pace of reforms, unlike the domestic investors. They reposed confidence on the India’s federal approach to push reforms at the State level. For example, Rajasthan has already amended its land act to project it an investment friendly state. Similar reforms are on the anvil in Gujarat. In summing up, the global turmoil was more forceful to drive the foreign investors in India and reap the benefits of Make in India, which is heading for a breakthrough in transformation in manufacturing sector. (IPA Service)