- Policy Uncertainty Weighs Confidence
- Rivals Gain Manufacturing Edge
- Growth Without Capital
Article Today, New Delhi:
India continues to record one of the fastest economic growth rates in the world. Output expansion has remained above seven per cent for several years. However, this momentum is not being matched by the inflow of foreign investment. Analysts point out that capital formation is lagging behind headline growth numbers, creating concerns about sustainability.
FDI Flows Remain Subdued
Foreign direct investment into India remained modest in 2023. Total inflows stood at about Rs. 5.90 lakh crore, lower than expectations for an economy of India’s scale. This has come despite rising global interest in India as a large market and manufacturing base. According to commentary in Bloomberg, investor sentiment remains cautious.
Investor Confidence Under Strain
Economist Mihir Sharma has argued that policy uncertainty continues to weigh on investor confidence. While reforms have been announced, implementation gaps persist. As a result, global investors remain hesitant to commit long-term capital, especially in capital-intensive sectors.
Volatility in Portfolio Investment
Meanwhile, foreign portfolio investment has shown sharp fluctuations. In early 2024, net inflows were limited, reflecting global risk aversion and domestic political uncertainty. Such flows, by nature, are short-term and sensitive to market conditions. This volatility adds little to stable capacity creation.
Regulatory Hurdles Persist
Doing business in India still involves complex regulatory processes. Land acquisition rules, tax disputes, and delays in approvals continue to trouble investors. Although the Goods and Services Tax has unified the market, operational challenges remain. These factors increase compliance costs and weaken India’s competitive position.
China Plus One Missed
Global companies seeking alternatives to China have explored several Asian economies. Vietnam and Indonesia have emerged as strong competitors due to simpler regulations and faster execution. India has attracted interest under the “China plus one” strategy, but conversions into actual investments have been limited.
Diaspora Capital Stays Abroad
In addition, Indian-origin investors in the United States and other developed markets have largely expanded investments overseas. Remittances remain strong, but long-term productive investment back into India has not grown at the same pace. This reflects concerns about returns and regulatory predictability.
Political Uncertainty a Factor
Domestic political uncertainty has also played a role. Concerns over coalition politics and policy continuity tend to delay investment decisions. For global investors, predictability is as important as growth potential.
Reforms the Way Forward
Therefore, experts argue that India must accelerate regulatory reforms and simplify taxation. Infrastructure development needs faster execution. Stronger trade agreements with the United States and Europe could also improve confidence. Only consistent policy action can convert high growth into sustained investment-led expansion.
