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Foreign Direct Investment (FDI) is crucial for the economic growth of any developing nations like India. Many plans and programmes have been instituted over the last three decades to lure foreign investors to India. But unlike small nations where such efforts work well, it could fuel disparities in vast countries like India as profitability plays an important role in selecting the place of investment. Since the adoption of the new economic policies in early nineties, it has been found that merely three or four states, out of the 29 Indian states, have found preferences from the foreign investors, leaving the rest of the states devoid of any investments. While Gujarat, Maharashtra, Tamil Nadu, Karnataka and Telangana are the favourite destinations, states like Uttar Pradesh, Bihar, West Bengal, the north-eastern region have not received FDI. For record, Maharashtra and Karnataka bagged more than half of the $233 billion FDI inflow into the country between October 2019 and March 2024. During this period, these two states along with Gujarat, Tamil Nadu and Delhi received almost 90 per cent of the FDIs in the country. As a result, most states are suffering due to paucity of funds, while a handful of states are marching ahead in terms of economic development. To prevent developmental disparity due to the imbalance in investment inflow, the Centre and state governments should sit together to find a solution.
The situation demands framing of a national policy to help decide the destination of FDIs. Such a plan may receive strong resistance from the investors and states for various reasons including unfavourable investment climate, but as a welfare state, the government can chart out a policy to ensure equitable inflow of FDI to various parts of the country. This will also avert lobbying and bitter battles between states for mega projects. Making details like availability of resources, both material and human, accessible to investors, will also help them make an informed decision. For instance, the north-eastern region could make an ideal BPO hub as the people have good communication skills in English language, but a significant investment for such firms goes to big metropolitan cities like Bangalore, Delhi, and Hyderabad. In the meantime, the Centre should focus on infrastructural development of states that are being constantly overlooked by the investors, as infrastructure including good connectivity and uninterrupted power supply are must to attract investment. The dominance in FDIs by a handful of states is not healthy.