The Hindu : UNCTAD sees increased inflow of FDI into India

Online edition of India's National Newspaper
Friday, Sep 05, 2003

Business

Business

UNCTAD sees increased inflow of FDI into India

By Our Special Correspondent

NEW DELHI SEPT. 4. With a rebound likely in 2004 for global foreign direct investment (FDI) flows, the United Nations Conference on Trade and Development (UNCTAD) has said that the prospects for increased FDI flows to India and China were promising, provided both countries wanted to accord such investments a role in their development process.

In its World Investment Report, 2003, released globally today, UNCTAD has said FDI flows to India rose from $3.40 billion in 2001 to $3.44 billion in 2002, sustaining its position as the largest recipient in South Asia. India's market potential, improved economic performance, growing competitiveness of information technology industries and the impetus of recent liberalisation measures were factors attracting more FDI into the country.

UNCTAD has also said that though India and China both received increased FDI flows, their performance had been strikingly different. While China would continue to be a magnet of FDI flows and India's biggest competitor, FDI flows into India were set to rise, helped by a vibrant domestic enterprise sector and if policy reforms continued and the Government remained committed to the objective of attracting FDI flows into the country.

China attracted seven times more FDI than India in 2002, its share being 3.2 per cent of its gross domestic product (GDP) compared with 1.1 per cent for India. In UNCTAD's FDI performance index, China ranked 54th and India 122nd in 1999-2001.

According to the report, on the basic economic determinants of inward FDI, China does better than India. China's total and per capita GDP are higher, making it more attractive for market-seeking FDI. Its higher literacy and education rates suggest that its labour is more skilled, making it more attractive to efficiency-seeking investors. But India may have an advantage in technical manpower, particularly in information technology. Also, its better English language skills serve as an attraction for FDI, the report has said.

UNCTAD has also noted that the Indian Government was planning to open some more industries for FDI and further relax the foreign equity ownership ceilings. But it has also pointed out that despite the improvement in India's policy environment, multinational investment interest remains lukewarm, with some exceptions like IT and communications technology.

On the global scale, UNCTAD said FDI inflows fell by over 40 per cent in 2001 and by another 21 per cent in 2002 to $651 billion. Outflows were also down in 73 of 151 countries.

At $120 billion, the U.S. outflows rose by 15 per cent from 2001 while the European Union's outflows at $394 billion decreased by 13 per cent in 2002 and Japan at $31 billion by 18 per cent.

FDI from developing countries at $43 billion dipped by $4 billion but their share in world outflows remained almost the same at 7 per cent.

However, FDI from Central and Eastern Europe climbed by $700 million to the level of $4.2 billion, with the Russian Federation being the largest investor in the region.

Driving the decline in FDI flows in 2001 and 2002, the most significant downturn of the past three decades, was a combination of macro economic factors such as weak economic growth or slump in economic activity linked to the business cycles in many parts of the world, especially the developed countries, and the tumbling stock markets.

Other factors identified were the winding down of privatisation, loss of confidence in the wake of corporate scandals and the collapse of some large corporations.

Printer friendly page
Send this article to Friends by E-Mail

Business