Make in India and Foreign Direct Investment (FDI) – Synergic Effect on Economic Growth

Abstract

‘Make in India’ is the latest momentum initiated by the Central Government with an aim to make India a manufacturing hub for the world. The concept is mooted keeping in view of the strengths of the country in terms of manpower, skill, consumption and abundantly available natural resources.

Foreign Direct Investment (FDI) is one of the main sources to supplement domestic capital wherein individuals, enterprises and corporates outside the country invest in India with an objective of ‘lasting interest’ in the enterprises they invested.

In the last ten years, there is a significant increase in Foreign Direct Investment (FDI) into the country in various forms and into various sectors of business. This has led to spur in growth of business activities, increase in GDP, Manufacturing PMI, income levels etc.

India being second most populous country in the world with 1.22 billion people and boasts nearly 500 million strong labour force ranging from unskilled workers to good English speaking engineers, doctors, researchers and professionals having potential of making cost-effective research and development based manufacturing. Largest population creates market for goods and brands the country as ‘consumption hub’, at the same time, pools of strong labour force brands the country as an ‘investment destination’ for foreign entrepreneurs easing the flow of Foreign Direct Investment.

An analysis of FDI inflow into the country vis-a-vis Index of Industrial Production (IIP) for last nine years (2005-06 to 2013-14) indicates that there is a strong positive correlation (r = 0.80) exists between the two. Recently government has put in place an investor-friendly FDI policy under which 100% FDI is permitted under the automatic route in most of the sectors/activities. This helps in economic growth by supplementing domestic capital, technology transfer and adoption of global practices leading to increased manufacturing and productive capacity.

Make in India initiative coupled with liberalized FDI policy, key policy changes enabling ‘ease of doing businesses’ create a synergetic impact on the national economy and galvanize India's economy to reach greater heights!

Keywords: Make in India, Foreign Direct Investment, FDI, Economic Growth