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FDI IN INDIA: Inter-State Variation



  Apr 24, 2024

FDI IN INDIA: Inter-State Variation



Why do some Indian states attract more foreign direct investment (FDI) in the automotive sector?

Some states provide strategic advantages such as proximity to ports, well-developed infrastructure, and a robust network of ancillary services, which are critical for automotive manufacturing and export operations.

What challenges do other states face in attracting FDI?

States without these advantages, especially those lacking access to ports and established industrial bases, find it difficult to attract and sustain foreign investment. Issues like inadequate infrastructure and less developed industrial ecosystems also hinder their ability to attract FDI.


The top three states attracting the most FDI each year between October 2019 and December 2023 were Maharashtra, Karnataka, and Gujarat. Maharashtra attracted the highest cumulative FDI of $65.8 billionduring this period, followed by Karnataka with $48.1 billion. Gujarat, despite not always being in the top three, has the third-highest cumulative FDI figures for this period.

Delhi and Tamil Nadu are also among the top five foreign investment destinations in the country, attracting $29 billion and $10.3 billion worth of FDI respectively since October 2019.

Interestingly, despite aggressive efforts by the government in Uttar Pradesh to attract investors, the state has only managed to attract $1.5 billion worth of foreign investments since October 2019. This suggests that other factors beyond government initiatives may play a significant role in attracting FDI

What strategies can help states become more attractive to FDI?

Improving infrastructure, enhancing connectivity to major ports, developing skilled labor forces, and providing incentives for establishing ancillary industries could make more states competitive in attracting FDI.

How does the concentration of FDI impact the overall economic growth of India?

While it boosts the economies of favored states, it can lead to uneven economic development across the country. Diversifying investment to include more states could lead to more balanced national growth.

What role does government policy play in influencing FDI distribution across states?

Government policies, including tax incentives, ease of doing business, and specific support for industries such as automotive manufacturing, play a crucial role in directing FDI to particular regions. Policymakers need to ensure that such benefits are extended more uniformly to help other states rise as competitive investment destinations.

These questions aim to elucidate the factors influencing FDI distribution in India, offering insights into how more states might attract investment, particularly in the context of the automotive sector. Strategies for improvement include not only enhancing physical and economic infrastructure but also ensuring that government policies support the broader distribution of investment opportunities. 



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