India’s manufacturing sector has failed to capitalize on multinational companies’ efforts to diversify supply chains away from China, foreign direct investment (FDI) data shows, even as manufacturing continues to shrink at the northern neighbour. Expectations of higher inflows into Indian manufacturing had taken root as China’s purchasing managers’ index (PMI) for manufacturing contracted in seven of the last 12 months, as Beijing struggles to reopen its economy after exiting its controversial zero-covid policy early this year. India’s PMI for manufacturing did not contract in the past year, but against expectations, FDI inflows fell 22% to $46.03 billion in FY23 amid high inflation and recessionary trends in developed economies.
India cannot take it for granted that the multinational companies will direct a big chunk of their planned ‘China plus one’ investment to India. FDI in India is concentrated in a few sectors such as IT and financial services. However, India’s manufacturing growth has gained momentum supported by rising demand for factory products and edging past its major competitor China, whose manufacturing has barely expanded during May and June after contracting in April.