Comparative Analysis of India and China FDI Policy (2024)

FAQs

What is the comparative analysis of FDI in India and China? ›

India have large pools of labor and strong domestic markets, it have also great opportunity for FDI, but if compare FDI in India and China there is significant difference in these two. In last year China received $111.7 billion (inbound FDI) whereas India only received $22.24 billion.

The P value 0.0017 indicates that the coefficient of exchange rate variable is highly significant with FDI in case India. The P value 0.238 indicates that the exchange rate variable does not exert significant influence of FDI in case of China.

Economic Development: India vs China

India's GDP is evaluated to be 7%, and China's GDP was 10%. China's manufacturing sector is also considered to be much more developed and enhanced compared to that of India. China's poverty level is as low as 5%, whereas the poverty level in India is approximately 25%.

It was found that China's much higher FDI from OECD countries was mainly due to its larger domestic market and higher international trade ties with OECD countries. India, however, had advantage in its cheaper labor cost, lower country risk, geographic closeness to OECD countries, and cultural similarity.

The Rupees 50,000 crore of cleared proposals since April 2020 must be seen in the context of FDI inflows from China and Hong Kong. Over this period, Rupees 961 crore of equity inflows had come in from China. The cumulative inflows from April 2000 to September 2023 amounted Rupees 16,073 crore.

FDI in India during the same period was between 0.04% of GDP and a maximum of 1.06% of GDP in 2001. That China attracted six times more FDI than India between 1981 and 2004, tells the whole story.

FDI has contributed to higher investment and productivity growth, and has created jobs and a dynamic export sector. China's success, however, did not come without some pitfalls: an increasingly complex tax incentive system and growing regional income disparities.

Enhancing Infrastructure and Development

Without a doubt, FDI has an impactful role in enhancing the infrastructure development of the county. They play a pivotal role by enhancing development in different sectors like manufacturing, renewable energy, as well as telecommunications.

The Chinese economy may now be more than five times larger than India's, but India is growing much faster than China, and no one expects that to change anytime soon. Already, since 2010, India's economy has overtaken those of the U.K., France, Italy and Brazil in size.

Although the picture looks rosy, India's $3.5 trillion economy remains dwarfed by the $17.8 trillion Chinese economy. Economists are of the view that it would take a lifetime for India to catch up with its shoddy roads, patchy education, red tape and a lack of skilled workers.

How does India's economic development currently differ from China's? ›

China accounts for around 30% of the world investment, while India's is less than 5%. “Even assuming zero growth in China, and a tripling of investment spending growth in India from its recent average, it would take another 18 years before India's investment spending catches up to China's,” they wrote.

FDI and China's growth

China does not depend on foreign investment to finance its development: FDI accounts for only about 3% of total investment. Rather, FDI is important because it is a channel through which know-how, in the form of international best practice, is transferred to Chinese firms.

Advantages for FDI in India: Deep-rooted and highly effective democratic regime, which ensures a calm and stable political environment.

In recent years, China has been the second largest recipient of foreign direct investments (FDI) worldwide, attracting approximately 189 billion U.S. dollars in 2022.

China jumped to third from seventh place last year on the 2024 Kearney FDI Confidence Index, just below the United States and Canada, according to a report released Wednesday by management consulting firm Kearney's Global Business Policy Council.

China's foreign direct investment totaled $33 billion on a net basis in 2023, according to the State Administration of Foreign Exchange, down about 80% from 2022.

The sheer size of China's population makes it an attractive nation for investors to commit capital to higher-end industries like healthcare, information technology, engineering, and luxury goods.