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FDI in India increased by $1 billion in 2001: WB

Foreign direct investment in India increased by "a full one billion dollars" in 2001 to reach $3.3 billion - an increase which is nearly one-fourth of the rise in FDI of the whole South Asian region, the World Bank has said.

The distribution of FDI flows within the region is more or less proportional to the gross domestic product, with 75 per cent going to India, says the bank in its annual 'Global Development Finance' report.

FDI in South Asia as a whole rose to $4.2 billion dollars in 2001, a 35 per cent increase, from the previous year.

Nevertheless, the bank points out, FDI to the region remains small, only 0.5 per cent of GDP. South Asia produces 9 per cent of developing countries' GDP but attracts only 2 per cent of FDI flows to the developing countries.

"The relatively small FDI flows into the region," says the bank, "in part reflect little progress in privatisation, glacial industrial regulations, and slow reforms in the labour market.

"Notwithstanding the recent successful sale of two highly profitable public enterprises in India, Videsh Sanchar Nigam Ltd and IBP, privatisation of other, often money-losing public companies remains a huge challenge."

Lending by foreign banks, which accounts for the bulk of external private capital market commitments to the region, declined by more than $1 billion in 2001.

Equity placement, which was hit hard due to heightened uncertainty created by the global economic slowdown and the September 11 events, declined by almost 50 per cent.

The region is expected to recover modestly in 2002 from the GDP growth rate of 4.3 per cent in 2001 to an average growth rate of 4.9 per cent, and thereafter remain at a rate around 5.3 per cent.

In Pakistan, the war-related aid, especially in the export sector, is expected to quicken the recovery of its economy.

Indian exports dropped by 2 per cent over the period from April to September compared with the levels from a year earlier. Manufacturing output in India showed no growth in the first half of the calendar year.

Pakistan's economy will clearly be affected for the military activities in Afghanistan, but it will also receive "ample financial support" from the international community to reduce debt-servicing requirements, possibly establishing a foundation for renewed growth.

Given the size and relative self-sufficiency of the Indian economy, says the bank, tepid domestic demand is the main culprit behind the current sluggishness of growth, although external factors have played a greater role than was typical in the past.

Investment is slowing, in part due to the slackening of export growth, and capital goods output dropped 8 per cent during the first half of fiscal 2001.

In another chapter, the bank says "FDI inflows ballooned to $4.5 billion this year, twice the level of any previous fiscal year."

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