CEA Subramanian credits growth in India's FDI flow to slew of Central govt reforms

India's Chief Economic Advisor (CEA) Krishnamurthy Subramanian has credited India's stellar performance in attracting foreign direct investment (FDI) in 2020 to a slew of reforms the Central government had taken during the Covid-19 pandemic period. India had registered  27 percent year-on-year growth in FDI flows at a time when global FDI flows dropped by 35 percent. "Money is put where the mouth is. It must have been because of mergers and acquisitions (M&A), but the fact that it happened in India and not as much in other countries is indicative of India's story," he said.

Delivering the key note address at a virtual policy roundtable organised by Delhi based Institute for Studies in Industrial Development (ISID) and United Nations Conference on Trade and Development (UNCTAD) on June 29, Subramanian said that India is the only country among large economies which undertook such a series of reforms in the last 12 to 18 months. According to him, India made special efforts to remove a lot of supply side friction. The labour reforms, the agricultural reforms, the change in MSME definition to avoid the phenomenon of dwarfism and most importantly, enterprise policy focused on the private sector were highlighted as the major reforms undertaken by the government. He said that it is the conviction showed by the political leadership to emphasise the role of the private sector in economic growth that has attracted FDI. "Words like privatisation and asset monetisation were never used in any government document, which finance minister has used now. As India emphasises the role of private sector, FDI will have a big role to play because FDI can bring those efficiency gains that can be generated by the private sector," he said.

Subramainan wanted foreign investors to ensure that in a country like India with such a large workforce, and large young population, one of their key objectives is to ensure that capital and labour are complimenting each other.  
 
The CEA said evidence of India's growth recovery had begun to be seen from the fourth quarter (January-March 2021) GDP numbers itself.

"There is good evidence of capital expenditure driven recovery that the government has pursued. If you look at the gross fixed capital formation (GFCF) in the fourth quarter, it has increased by almost 30 percent year on year. This is crucial because it is more than six years' high and a reasonable proportion of this was private capex as well," Subramanian said. According to him, the two key spillover effects that manifested was consumption, which declined for three quarters because of pandemic induced restrictions and pandemic induced risk aversion grew by 2.7 percent in the fourth quarter, and the contact sensitive sectors which have been affected across the world, declined only 2.3 percent in the fourth quarter.

The roundtable on "Leveraging FDI flows for sustainable recovery" saw a presentation by Richard Bolwijn, director, UNCTAD and a panel discussion moderated by Nagesh Kumar, director,  ISID. Manoj Pant, director Indian Institute of Foreign Trade and Deepak Bagla,  CEO, Invest India, spoke.

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