India’s FDI Prospects and the APEC

The euphoria over the birth of the NDB (New Development Bank) at the 6th BRICS Summit overshadowed the invitation extended by Chinese President Xi Jinping to Indian Prime Minister Narendra Modi for the APEC Leaders meeting in China in November. Mr. Modi’s presence at the meeting would significantly improve India’s prospects of joining the APEC. President Xi’s invite reflects the possibility of China supporting India’s entry. This would enhance the strategic backing India enjoys from other major APEC members like Australia, Japan, Indonesia and the USA.

The formal integration of the world’s 10th largest economy (nominal GDP of $1.9 trillion) with the APEC would sharply augment long-term cross-border FDI flows between India and the region. Economic benefits from closer integration with the regional supply chains are one of the major drivers behind India’s efforts to join the APEC. Competitive advantages based on trade and investment flows in these chains are guiding country positions at all major trade negotiations in the Asia-Pacific: Trans Pacific Partnership (TPP), Regional Comprehensive Economic Partnerships (RCEP) and the several bilateral FTAs. By joining the APEC, India would aim to consolidate its advantages in the negotiations where it is involved. Its objective would be to attract export-oriented FDI from the region, particularly in manufacturing functions at the relatively lower and upstream segments of supply chains. This would contribute significantly to its objective of increasing economic growth through a higher share of employment-intensive manufacturing. Both the US and China are keen on a pan-regional FTA for the Asia-Pacific. India’s joining the APEC with the strategic backing of the US and China would help it to contribute to the vision. India would also be able to participate in regional investment talks in a trade template reflecting both the US and Chinese interests.