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Introduction

Foreign Direct Investment (FDI) refers to cross-border investment through which a foreign entity acquires a lasting interest and managerial control in a domestic enterprise. According to the Economic Survey 2024–25, quality FDI not only augments capital formation but also facilitates technology transfer, employment generation, innovation, and integration with Global Value Chains (GVCs), making it a key driver of India’s long-term growth.

 

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Challenges in Attracting Quality FDI

1. Infrastructure Deficit

  • Point: High logistics costs and inadequate industrial infrastructure reduce India’s competitiveness.
  • Example: Despite PM Gati Shakti, logistics costs remain higher than many competing Asian economies.

2. Regulatory and Compliance Complexity

  • Point: Multiple approvals, compliance burden and policy uncertainty increase the cost of doing business.
  • Example: Investors often face delays in land acquisition and environmental clearances.

3. Skill Gap

  • Point: Shortage of industry-ready skilled manpower discourages investment in high-technology sectors.
  • Example: Semiconductor and advanced manufacturing industries require specialised talent.

4. Weak Integration with Global Value Chains (GVCs)

  • Point: Limited participation in global production networks restricts export-oriented FDI.
  • Example: India’s share in global merchandise exports remains modest compared to East Asian economies.

5. Contract Enforcement and Judicial Delays

  • Point: Slow dispute resolution affects investor confidence and raises business risks.

6. Global Economic and Geopolitical Uncertainty

  • Point: Rising protectionism, geopolitical conflicts and supply chain disruptions influence investment decisions.
  • Example: Global capital flows have been affected by geopolitical tensions and monetary tightening.

 

Measures to Maximise the Developmental Impact of FDI

1. Improve Ease of Doing Business

  • Point: Simplify regulations through stable, transparent and predictable policies.
  • Example: Expansion of the National Single Window System (NSWS).

2. Strengthen Industrial Infrastructure

  • Point: Develop integrated manufacturing clusters and logistics networks.
  • Example: PM Gati Shakti, Industrial Corridors, and National Logistics Policy.

3. Promote High-Quality Manufacturing

  • Point: Encourage FDI in technology-intensive and export-oriented sectors.
  • Example: Production Linked Incentive (PLI) Scheme for electronics, pharmaceuticals and automobiles.

4. Develop Skilled Human Capital

  • Point: Align skilling initiatives with industry requirements.
  • Example: Skill India Mission, PM Internship Scheme, and National Education Policy 2020.

5. Strengthen Domestic Supply Chains

  • Point: Improve linkages between foreign firms, MSMEs and startups to maximise technology spillovers.
  • Example: Vendor development programmes and cluster-based manufacturing.

6. Promote R&D and Innovation

  • Point: Incentivise research partnerships and intellectual property creation.
  • Example: Anusandhan National Research Foundation (ANRF) and semiconductor ecosystem initiatives.

Conclusion

Quality FDI is not merely a source of capital but a catalyst for technology transfer, productivity enhancement, employment generation and export competitiveness. By ensuring policy stability, world-class infrastructure, skilled human capital and stronger integration with Global Value Chains, India can leverage FDI to achieve inclusive growth, strengthen Atmanirbhar Bharat, and realise the vision of Viksit Bharat @2047.

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