Restore the Indian Economic Miracle by Attracting Foreign Investment

Two decades of robust economic growth that gave rise to the so-called “Indian Economic Miracle” have been replaced by ever worsening stagnation over the last several years: in 2013, Indian labor productivity growth (2.4 percent) and GDP growth (4.4 percent) sank to their lowest levels in over a decade. Unfortunately, Indian policymakers have increasingly reacted to this situation by embracing “innovation mercantilist” policies designed to promote domestic industries at the expense of global trade partners. Yet while these policies may appear beneficial by boosting domestic production in the short-run, ultimately they are likely to prove counterproductive, by hampering investment by companies in India, lessening India’s attractiveness as a location for foreign direct investment, and engendering retaliatory measures by other nations. A far better plan would be to adopt an attraction—not a compulsion—strategy in trying to bring globally mobile investment and production to India’s shores, while at the same time ensuring robust domestic competitive markets.