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ICS Occasional Papers

Can Indian Para-diplomacy Harvest FDI Gains from China’s Loss in the post-Covid era?

There are vast dissimilarities between the design and performance of FDI policies in India and China. While China witnessed consistent growth in FDI inflows since 1978, a post-COVID19 downtrend is expected due to a desire for diversification in global value chains. India’s FDI inflows have been more volatile and it is seeking to capitalize on China’s demotion on the back of some bold initiatives. This makes a dissection of China’s FDI experience instructive from an Indian perspective. This paper presents an overview of prevailing FDI policies in India and China including regional disparities within each country. It then examines individual strategies pursed by local governments in China to determine their suitability for adoption in India after accounting for differences in political and legal systems. The primary focus is on distilling techniques that will not only increase India’s weightage in global value chains but also enhance domestic spillovers from FDI to aid growth of domestic manufacturing sector. The results can be instrumental in introducing much needed nuance into India’s para-diplomacy efforts. Differentiated strategies employed by State governments at the industry and enterprise levels are likely to extract better results than overlapping efforts with a similar toolkit aimed at a common audience.

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