The Hindu : Business : India second only to China in attracting FDI

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Wednesday, Oct 17, 2007
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India second only to China in attracting FDI

Special Correspondent

UNCTAD releases World Investment Report

U.S. emerges third followed by Russia, Brazil
Many MNCs expand operations in India

— PHOTO: PTI

scaling up: Masataka Fujita (right), Chief of Investment Trends and Data Section of UNCTAD, with Shalini Dewan, Director of United Nations Information Centre, releasing the World Investment Report in New Delhi on Tuesday.

NEW DELHI: With China leading the pack, India emerged as the second most attractive location — ahead of the U.S. and Russia — for global foreign direct investment (FDI) in 2007, the United Nations Conference on Trade and Development (UNCTAD) has said in its ‘World Investment Report.’

In its report released here on Tuesday, UNCTAD said: “China is the most preferred investment location, followed by India, the U.S. and then the Russian Federation and Brazil.” With its new-found attraction, India’s rank in inward FDI performance index has also improved to 113 in 2006 from 121 in the previous year.

What is significant is that in terms of FDI outflows too, India and China are emerging as major players. The two countries, the report said, are “beginning to challenge the dominance of the Asian newly industrialising economies (NIEs) — Hong Kong (China), the Republic of Korea, Singapore and Taiwan — as the main sources of FDI in developing Asia.”

The foreign investors’ choice of destination, as per the polling by respondents in the UNCTAD survey, is clear. China is on top with a poll of 52 per cent, with India coming next with 41 per cent. While the U.S. has emerged third with a poll of 36 per cent, Russia and Brazil account for the fourth and fifth positions with 22 per cent and 12 per cent, respectively.

Buoyed by the strong economic performance by China and India, the survey has projected the rapid growth in South, East and South-East Asia to continue. Moreover, the entire region is likely to turn more attractive to ‘efficiency-seeking’ FDI as a number of countries such as India, China, Indonesia and Vietnam are drawing up massive plans to develop their infrastructure.

During 2005-06, India emerged as the fourth largest FDI recipient, with China and Hong Kong manning the top two positions and Singapore taking the third spot. Interestingly, during the year, India registered a substantial increase in FDI amounting to $17 billion.

Taking cognizance of this, the UNCTAD survey notes that FDI inflows to South Asia soared by 126 per cent to $22 billion in 2006, mainly owing to the Inflows into India. “The country received more FDI than ever before (153 per cent more than in 2005), equivalent to the total inflows to the country during the period 2003-05,the report said while noting that the improved investor confidence was owing to India’s rapid economic growth.

Alongside, the sustained growth in income also rendered India as increasingly more attractive to market-seeking FDI. “Indeed, foreign retailers such as Wal-Mart have started to enter the Indian market. At the same time, a number of U.S. transnational companies (TNCs) such as General Motors and IBM are rapidly expanding their presence in the country, as are several large Japanese TNCs such as Toyota and Nissan,” the report said. The UNCTAD report pointed out that just as FDI inflows are soaring, Indian and Chinese companies are also reaching out to the world with outward investment flows. For instance, India’s outflows in 2006 were almost four times higher than that in 2005.

It highlighted a major difference in that while the FDI outflows from China are driven by international expansion of state-owned enterprises, the booming outflows from India have been dominated by privately-owned conglomerates such as the Tata Group.

“The emergence of China and India as important sources of FDI, coupled with active merger and activities by investors based in the Asian NIEs, particularly Singapore, has led to increased FDI flows from Asia to developed countries,” the report said.

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