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FDI in India surges despite global decline: UN report

Foreign Direct Investment in India registered a 47 per cent increase in 2001 over the previous year, notwithstanding a sharp global slowdown in these flows during this period, according to the World Investment Report 2002 released on Tuesday.

Of the total inflows of $4 billion into South Asia in 2001, $3.4 billion went into India, the report by the United Nations Conference on Trade and Development said.

The report notes that India, by far the largest recipient in the region, has been taking steps to liberalise its FDI regime further. ''Inflows into other economies in the sub-region stagnated or declined, apparently due to perceived instability in the investment environment, particularly after the September 11 event,'' the report said.

FDI inflow

India, which was sixth among the top ten economies in Asia and the Pacific region, saw its flows rise by $1.1 billion from $2.3 billion to $3.4 billion. But India's performance was nowhere near China's where inflows touched $46.8 billion up from $40.8 billion last year.

However, Hong Kong, saw its FDI flow decline by 62 per cent to $22.8 billion from $61.9 billion recorded by it in the previous year.

FDI to Singapore rose from $5.4 billion to $8.6 billion but investments in Taiwan declined to $4.1 billion from $4.9 billion. However, it was still ranked fourth among the top ten.

Thailand, which occupied the fifth position, recorded an increase in flows by $1 billion from $2.8 billion in 2000. The flows to Turkey increased from $1.8 billion to $3.3 billion to give it the 7th position and South Korea at 8th found its inflows recording a sharp decline from $9.3 billion to $3.2 billion. Kazakhstan attracted $2.8 billion and the Philippines $1.8 billion.

FDI Performance Index

India ranks 121 out of 140 countries on the FDI Performance Index and 96 on FDI Potential Index constructed by the report.

The former FDI benchmarking measures performance by standardising a country's inflows to the size of the economy and the later measures potential by using a set of economic and policy factors of importance to foreign investors.

Taken together, the two indices show how countries are performing relative to their potential.

Belgium and Luxembourg , Hong Kong, China and Angola are the best performing host economies for FDI, while the United States, Sweden and Singapore have the highest potential.

The report quotes a recent Multilateral Investment Guarantee Agency, a World Bank affiliate, survey which ranks India, Malaysia and Singapore as favoured destinations.

Another notable trend is that Indian Trans-national Corporations accelerated their outward investment, particularly the asset seeking kind, via cross border mergers and acquisitions.

The value of cross-border acquisitions by Indian firms doubled to more than $2 billion in 2001.

This is despite the fact that FDI from developing Asia, at about $32 billion in 2001, hit its lowest level since 1998, mainly because of a massive fall in outflows from the largest traditional investors, Hong Kong and China.

One of the distinctive features of outward FDI from developing Asia is the shift in the mode of entry over the past two years, from greenfield investment to M&As. The latter reached $25 billion in 2001, about 80 per cent of the outflows from the region.

World FDI inflow

World FDI inflows plunged last year by 5.1 per cent, to $735 billion, marking the first decline in a decade. But the picture is mixed, with the downturn concentrated mainly in developed countries (down 59 per cent), as opposed to a 14 per cent drop in developing countries. At the same time, developing countries and Central and East Europe economies are garnering a rising share of FDI overall.

Briefing newspersons on the report, Nagesh Kumar, deputy director general, Research and Information Systems for the Non- Aligned and Other Developing Countries, said the potential for India attracting even larger flows during the Tenth Plan period is immense in view of the progressive liberalisation of the foreign investment regime.

Besides, the average five per cent plus growth rate experienced by India in recent years makes it one of the fastest growing economies. ''FDI inflows are somehow linked to economic growth rate, which explains why foreign investment in the 1990s remained low,'' he said.

''FDI flows to India are likely to increase in the coming years,'' Kumar, who is an expert on industry, said and added that a number of surveys of consultancy firms and agencies have demonstrated this aspect.

The reforms undertaken by India have created a 'good impression' abroad. Infrastructure is the only bottleneck that remains. ''A lot of investment needs to be put in this sector,'' he said.

''The bigger failure for the country, however, is not so much the numbers as the failure to make the FDI work for exports,'' Kumar said referring to the theme of the report ''Transnational Corporations and Export Competitiveness.'' The report brings out that only three per cent of the FDI India received went into export promotion as compared to the very successful policy followed by China in this regard.

Kumar said the Chinese government leverages its huge domestic market making it almost obligatory for the MNCs to undertake export activities.

UNI

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