The Impact of FDI on India's Manufacturing Sector

The Impact of FDI on India's Manufacturing Sector

Foreign direct investment (FDI) has risen considerably in post-reform India. The work and category of FDI has changed significantly since India has opened up to world markets. This has fueled high prospect that FDI may serve up as a channel to advanced economic growth. However, it turns out that the development effects of FDI differ extensively across sectors. FDI stocks and production are equally reinforcing the domestic manufacturing sector.

India is ranked second in the world in terms of manufacturing capability, according to the "2010 Global Manufacturing Competitiveness Index'" by Deloitte Touche Tohmatsu and the US Council on Competitiveness. India's workforce of scientists, researchers, and engineers, together with its English-speaking workforce and democratic regime, the report says, make it an attractive destination for manufacturers. In 2010, the indicator of the overall condition of the manufacturing sector has moved up to 126.5 for the appraisal quarter, its highest reading since the April-June 2007 quarter. In the last quarter of the year, the manufacturing industry showed positive results despite less than impressive performance in other sectors.

Growth in India's manufacturing sector

Approximately 50 sectors in India's domestic manufacturing sector grew by 39 percent during the April December 2010 period, achieving the "excellent growth" category. These segments are air conditioners, natural gas, tractors, nitrogen fertilizers, ball bearings, electrical and cable wires, auto components, construction equipment, electric fans and the tire industry. Twenty-two segments entered the "high growth" group, registering a growth of 17.3 percent during the first nine months of the existing fiscal. Industries such as utility vehicles, crude oil, power transformers, energy meters, alcoholic beverages and textile machinery have registered around 10-20 percent growth.

Exports from Indian SEZs grew by over 68 percent (to US$12.55 billion) as compared to the corresponding period of 2009-10. Floating by India's reaction to its super-machines, iconic American superbike maker Harley Davidson is setting up an assemblage unit at Bawal, Haryana. This will be its second establishment outside the United States, after Brazil. Field Fresh, the 50:50 JV of Bharti Enterprises and Filipino firm Del Monte Pacific Ltd formed in 2007, has started its R&D and manufacturing unit at Hosur, Tamil Nadu, with an initial establishing cost of US$26 million.

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