Chasing the dragon: accounting for the under‐performance of India by comparison with China in attracting foreign direct investment

This paper compares the performance of India and China in attracting foreign direct investment (FDI). China ranks number one as the world's preferred foreign investment destination. FDI statistics suggest that India's performance has been significantly understated but India still lags absolutely for several reasons. These include a high tariff regime, poor physical infrastructure, a regulatory system that is too often not business friendly and a policy of reservation of many potentially export‐oriented sectors for small businesses. The paper concludes that further liberalization of India's FDI regime is likely to be driven by external pressures and state‐level initiatives.