Our conservative approach to Foreign Direct Investment (FDI) has been one of the biggest impediments in gaining momentum in manufacturing. Today, China is one of the biggest receivers of FDI. Around 50 percent of China's total exports and 90 percent of their high technology exports come from the factories set up by the MNCs. While in India it is less than 20 percent.
Apart from capital flow, the biggest value these MNCs have brought is the extent of employment opportunities. The unemployment ratio in China in 2012 was 4.1 percent, whereas in India it was 9.8 percent during the same period. The stress on labour intensive manufacturing in China has not only helped them to contain unemployment but has had a positive impact on the economy as well. We must learn from our neighbours.
Of course, India cannot change things immediately and become FDI friendly overnight. And yes, to give credit where it is due, the process of change has started. However, it needs to be pursued with the right intention and mechanism. FDI limits have been increased in several sectors and the processes too have been eased; the need is to create confidence both amongst investors and the business fraternity.
One of the primary impetuses to the growth of Chinese manufacturing came from the affirmative policy of providing substantial incentives to industries to set up units there in the form of cheap land, power, labour and other facilities. It obviously led to significant cost-advantage to the industries making China highly competitive than similar economies. China invested smartly into infrastructure like roads, ports, airports, etc. early on leading up to scores of MNCs setting up shop in China.
The ‘Made in China' brand eventually has become a brand in itself today across almost any light or heavy engineering products. India always had the ‘low cost' advantage but now it needs to enhance the same by building up its capacities and capabilities for value engineering to compete globally. More R&D activities should be encouraged and innovation should be rewarded well.
