Page 10 - CII-ARTHA

ARTHA

Moving the Lens: assembly-led growth toward higher domestic value

From Quantity to Quality addition: design capability, process innovation,
component ecosystems, alignment with sustainability
standards, and globally competitive IP.
A mature national investment strategy optimises the
quality mix of foreign capital, not just its quantity. The
following four dimensions matter: The most durable gains from FDI are structural.
Multinational firms bring production standards,
supply-chain discipline, R&D intensity, and managerial
practices that diffuse through vendor development and
Duration workforce training. FDI also performs a signalling role:
Does the capital stay through cycles? sustained inflows function as a revealed-preference vote
on growth prospects and institutional credibility,
Productivity compressing risk premium and crowding in domestic
Does it build capacity and deepen private investment.
supply chains?
Reducing Friction:
Resilience
Does it behave predictably in a shock? Taxes, Compliance, and
Regulatory Predictability
Spillovers
Does it create jobs, skills, and Attracting quality capital requires more than a competitive
domestic R&D?. pitch - it requires removing the friction that quietly
narrows the investible universe. Openness to
international capital, transparency in rulemaking, and
consistency in applying standards of governance shape
This lens helps reconcile a debate policymakers and
markets often have in parallel. India benefits from both how risk is priced. Three areas stand out.
Foreign Direct Investment (FDI) and Foreign Portfolio
Investment (FPI), but each plays a different role. FDI First, tax predictability is foundational. Retrospective
builds capacity and embeds technology. FPI deepens uncertainty has historically been one of the most cited
liquidity and lowers the cost of capital but is more investor concerns. Resolving structural tax anomalies -
sensitive to global risk appetite. The policy task is not to such as the April 2021 date restriction affecting tax
prefer one over the other - it is to design a system where exemption eligibility for certain infrastructure holding
each participates productively, with guardrails suited to company structures - sends a direct signal that the
its nature. rulebook is stable, and that legacy and new vehicles are
treated with fairness and consistency.

Why FDI Matters and Second, compliance burden matters equally. SEBI has
sharpened its focus on reducing trade frictions for foreign
How to Think About It investors through digital documentation, streamlined
block deals, and cleaner market plumbing including
FDI is long-duration risk capital that, when well-directed, netting. Budget 2026-27 proposed review of Foreign
supports capital deepening and improves total factor Exchange Management Act (FEMA) non-debt instrument
productivity. For an economy seeking to accelerate rules and higher FPI limits in listed equities move in the
industrial transformation - particularly in manufacturing same direction. The cumulative effect of these steps will
and infrastructure - domestic savings are necessary but widen the eligible investor base and reduce the cost of
not always sufficient when large-scale investment must participation.
be front-loaded to capture global supply-chain shifts.
Third, dispute resolution timelines remain a persistent
Beyond capital formation, FDI embeds India into concern for long-duration investors who must underwrite
export-oriented production networks in electronics, legal risk over a decade or more. Credible, time-bound
renewables, semiconductors, and technology-enabled resolution - across commercial courts, arbitration, and
services. The strategic objective is to move from sector regulators - is a precondition for bankability.

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