Moving beyond disappointment: India, FDI, and sustainability

India’s star may be rising, but as a destination for foreign investment to help power that economic rise, not enough has changed. The government’s commitment to several sustainable sectors – from the modernization of water access to electric mobility to renewable power generation – is incontrovertible. However, an unfortunate comparison can be made to its emphasis on mass manufacturing as a destination for FDI in the years since 2014. Though India’s rhetorical commitment was compelling, actions on the ground led to the promise of increased FDI in manufacturing being belied.

In this essay, Mihir Sharma of the Observer Research Foundation examines four areas of interest regarding FDI flows into India. First, data suggests India is disappointing as an FDI destination. Second, manufacturing in India has been a particular letdown in spite of the recent government focus on encouraging FDI to the sector. Third, these issues may be caused in part by poor dispute settlement mechanisms, arbitrariness at the state level, and discrimination against foreign investors – in essence, a poor climate for FDI. And fourth, these same problems are likely holding back what would otherwise be a sizable flow of funds into sectors relevant for India’s sustainable development, including private climate finance.