India continues fast economic growth but FDI falls sharply

The Indian economy is expected to grow at 7.6 percent in 2023-24 as compared to the revised estimate of 7 percent for the previous year, the government data showed, but foreign direct investment fell sharply.

India's GDP grew 8.4 percent in the third quarter (October-December quarter), according to the latest data released by the Federal Ministry of Statistics and Program Implementation.

Yet FDI inflows in India fell by 13 percent to $32.03 billion in April-Dec 2023. This decline was primarily attributed to reduced investment in sectors such as computer hardware and software, telecom, automotive, and pharmaceuticals, according to the latest government data.

Analysts had estimated the GDP growth in the third quarter at below 7 percent. The data released by the government showed that the Indian economy continues to expand rapidly.

The double-digit growth rate of the construction sector (10.7 percent), followed by a good growth rate of the manufacturing sector (8.5 percent) has boosted the GDP growth in FY24, according to the government.

Strong construction and manufacturing activity in India are the key reasons behind this remarkable 8.4 percent GDP rise in the third quarter of the current fiscal year.

The "robust" third-quarter growth "shows the strength of the Indian economy and its potential," Prime Minister Narendra Modi said in a post on X.

He added, "Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat (Developed India)!"

The Indian government, led by Modi, has spent heavily to upgrade and modernize the country's infrastructure and incentivized manufacturing of phones, electronics, drones and semiconductors.

Over the last ten years, manufacturing has made up 17 percent of India's economy and expanded 11.6 percent year-on-year in the December quarter.

However, the farming sector which accounts for about 15 percent of the Indian economy decreased by 0.8 percent during the quarter compared to a growth of 5.2 percent a year ago.

The total FDI -- which includes equity inflows, reinvested earnings and other capital -- declined by about 7 percent to $51.5 billion during the period under review against $55.27 billion in April-December 2022, according to data from the Department for Promotion of Industry and Internal Trade, a wing of the federal ministry of Commerce and Industry.

Throughout the nine months of this fiscal year (April–Dec), FDI equity inflows reduced from major countries, including Singapore, the US, the UK, Cyprus, and the UAE.

The fall in FDI was due to two major factors, slowing of FDI inflows into developing countries, and slackness in overall private investment during the current fiscal, said Biswajit Dhar, former professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi.

There is an overall drop in FDI because of the crisis in developed countries and many developed countries are looking into the policy to improve their own production rather than investing in other countries, said Prof Dibyendu Maiti, with Delhi School of Economics, New Delhi.

Another important factor contributing to the decline in FDI inflows is India's investment restriction from China, Prof Maiti pointed out.

Stupendous investment to upgrade India's roads, bridges, airports, sea ports is a key reason for GDP growth. Additionally, it is generating enormous demand for other machinery, iron, steel and cement, which is leading to GDP growth, said Professor Amit K. Biswas, of the department of economics and politics at Visva-Bharati University in Santiniketan, West Bengal.

Good agricultural production last year was a major contributor to the GDP growth rate. India's economy is still in the recovery phase after the pandemic and the recovery phase could be faster, Maiti underscored.

India's federal government on Thursday approved setting up three chipmaking units worth $15.2 billion from firms including India's Tata Group and Japan's Renesas.

The units will begin construction within the next 100 days, federal electronics minister Ashwini Vaishnaw said on Thursday.

Tata Electronics Private Limited (TEPL) will set up a semiconductor fab in Gujarat, India's western state, in partnership with Powerchip Semiconductor Manufacturing Corp (PSMC), China's Taiwan region. It will have a capacity of 50,000 wafer starts per month, according to a press statement.

CG Power, in partnership with Renesas Electronics Corporation, Japan and Stars Microelectronics, Thailand will set up another semiconductor unit in Gujarat. The CG power semiconductor unit will manufacture chips for consumer, industrial, automotive and power applications. Its capacity is 15 million per day, the statement said.

Tata Semiconductor Assembly and Test Pvt Ltd will set up a semiconductor unit in Assam. This unit will cover segments such as automotive, electric vehicles, consumer electronics, telecom, mobile phones, etc. Its capacity will be 48 million per day, the press statement said.

It is a major step towards PM Modi's goal of turning India into a global semiconductor hub and becoming an electronics powerhouse, experts said.

Earlier Modi asserted that India will become the world's third-largest economy in the coming years. "On the basis of the experience of 10 years of governance, looking at today's strong economy and the rapid speed with which India is progressing today, I can confidently say that in our third term, India will be the third largest economic power. This is Modi's guarantee," he told the Indian Parliament earlier this month.

The writer is a freelance journalist for China Daily.