Sustainable growth

FDI and private sector-led local development strategies for sustainable growth and more and better quality jobs

The report is produced by the development cooperation project ‘Promoting Sustainable Enterprises in India’ (PSEI) funded by Korea International Cooperation Agency (KOICA). This study proposes to discuss and recommend policies and actions that may promote economic diversification and employment generation through private sector investments, with a special focus on foreign direct investment (FDI).

This study proposes to discuss and recommend policies and actions that may promote economic diversification and employment generation through private sector investments, with a special focus on foreign direct investment (FDI). The study has focus on the food processing and garments (including textile) sectors in Andhra Pradesh, Odisha and Rajasthan and analyse various aspects of the value chains of the two target sectors such as creation and formalization of jobs, product diversification and export growth. Enterprise level data has been used to provide a detailed firm level account of the relationship between value chains, FDI and employment. All the three states have a relatively larger share of the manufacturing sector compared to the national average. In addition, the pace of service growth in these States has been slower than at the all-India level. The three States, thus, have the potential to revive industrial growth in India. Both the food processing and textile sectors show similar spatial distribution, suggesting strong linkages across sectors and the presence of industrial clusters in all the three States. The development of such industrial clusters can serve as an effective instrument to fast-track the integration with global value chains (GVCs) through strategic interventions such as identifying anchor investors, offering limited period incentives, enhancing ease of doing business and streamlining approvals. These patterns indicate the need to work with State Governments in order to identify, create and promote additional clusters. The study also reviews five countries – Cambodia, Singapore, Malaysia, Philippines and the Republic of Korea – that have emerged as examples of successful linkage developments.