Annual FDI inflows over the past decade were relatively sedate in the $45-62 billion range before spiking to $74 billion in 2019-20 and peaking at $84 billion in 2021-22. This was the surge into startups fed by their increased appeal during Covid restrictions. Normalising economic activity has made valuations more realistic, and the decline in FDI inflow to $71 billion in 2022-23 is guided by increased regulatory scrutiny. The government is using the angel tax to nudge startup fundraising closer to their fair value.
The production-linked incentive (PLI) scheme has, on the other hand, had mixed results. The success stories are at the top of the value chain, such as mobile handset manufacturing, which by design are provided bigger incentives. These are also segments that involve creating alternative global supply chains that require seeding the ecosystem. There is an urgency built into this process. Investments lower down the food chain, for instance, in metals, are more dependent on a global economic recovery and have a longer turnaround cycle. Domestic demand is also slowing down capacity addition in manufacturing. The PLI scheme will have to deliver on a broader front to lower India’s concentration risk in FDI.
