Unlike Southeast Asia, India isn’t seeing any investment gains as global trade tensions disrupt supply chains.
Foreign direct investment in the third-largest Asian economy fell 7 per cent in the nine months to December, signaling slowing investment before upcoming elections. FDIinflows into India during the period was $33.5 billion, lower than the $35.9 billion in the year-ago period. The fall was more prominent in manufacturing sectors.
That should be a concern for Prime Minister Narendra Modi as he seeks a second term in office in polls due by May. He had swept to power in 2014 with the biggest victory margin in 30 years after promising to make India a hub for manufacturing and create jobs for 10 million people every year.
Global headwinds and political uncertainty spawned by the upcoming elections are seen as reasons why investors have chosen to remain on the sidelines.
“India is now in an uncertain state politically,” said Indira Rajaraman, an economist and a former member of the Reserve Bank of India’s board. “The climate here won’t encourage companies to make long-term investments for the time being.”
The decline in foreign direct investment in India is in contrast to the boom seen in its southeast Asian peers. Vietnam, Thailand, Philippines and Malaysia are seen poised to benefit from the trade tension between the U.S. and China, as companies seek to re-work supply chains threatened by tariffs.
“Philippines and other Southeast Asian countries have been steadily setting themselves up, inviting foreign investment,” said Rajaraman. “An open door policy makes them more attractive at this juncture.”