What's Happening?
India is facing significant economic challenges, with a sharp decline in foreign direct investment (FDI) and lagging manufacturing growth. Net FDI has plummeted to $353 million in 2024-25, a fraction of previous years' figures. Despite expectations of becoming a manufacturing hub, India struggles with low productivity and human capital deficits. The Reserve Bank of India's commentary on the situation has been criticized as misleading. The 'China-plus-one' strategy, aimed at attracting manufacturing away from China, has not yielded the expected results, with Vietnam emerging as a key beneficiary instead.
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Why It's Important?
The decline in FDI and manufacturing growth poses a threat to India's economic aspirations and its potential to become a global manufacturing leader. The situation highlights the need for structural reforms, particularly in education and female workforce participation, to enhance productivity. The challenges also raise questions about India's ability to capitalize on global trade opportunities, especially in light of geopolitical shifts and trade policies. Addressing these issues is crucial for sustainable economic growth and improving India's global standing.
