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Image problem, major hurdle to FDI: Mittal

Syed Amin Jafri in Hyderabad | January 06, 2003 14:35 IST

India is still not doing enough to fix the problem of its image as an investment destination though the country has all the right things going for it.

Speaking at the second plenary session of the ongoing CII 9th Partnership Summit in Hyderabad on Monday, Sunil Mittal, managing director, Bharti Enterprises, said there was a strong case for investors in United States and Europe to come into India and China in a big way.

India, he said, should get much higher foreign direct investment inflows that it was getting currently, because of the immense opportunities that it offered.

India, he said, got FDI of $8 billion, which worked out to just 1.7 per cent  of the gross domestic product last year, though other estimates put the figure at between $5 billion to $9 billion. China, on the other hand, had been attracting FDI of $40 to $50 billion  annually in the last few years.

He, however, said that the Chinese growth was tapering off. China has had a great run for the last one decade. In the next decade, the growth is going to be lower and lesser. It cannot sustain the growth of 10 per cent annually in the next few years.

"That brings India into focus, given its tremendous advantages,"  he added.

Giving an overview of the global economy, Mittal said the outlook for the current year posed certain issues to India. Europe and US had a very bad year in 2002.

The prognosis for the current year was not bright either. US was struggling to kick off demand to fight back recession.  Germany was in deep depression.

The United Kingdom seems to be still a place where some activity was seen.

He said in these circumstances, it was necessary for the Indian corporates to go and cast their net very wide in areas where the population was big and where the spending was higher.

Asia, with its three billion people, compared to just 750 million in Europe and US, was a land of opportunity.  The buying power and consumption levels were going up.

He said India offered big opportunity in the BPO sector for the US and Europe.

While US and Europe were struggling with hourly wage rates of $25 to $27 for manpower, they could get the job done by outsourcing the business as manpower was available here for $8 to $9 per hour.

Several million Indians all over the world were serving in backoffice operations. If ITES sector grows to one million manpower strength, this would generate business of $25 billion to $26 billion.

The saving for the US or Europe by business process outsourcing to India could be as high as $125 billion a year.

He said India should also itch for being a manufacturing base. But the problem was India's image which needed to be improved.

The country needed to fix the problems with its image as an investment destination by tackling several issues. Only telecom sector was a success story but other sectors such as aviation needed more changes.

Among the Indian states, Andhra Pradesh and Karnataka were going up on the graph with reforms and progressive policies but they were still no match for Hong Kong and Shanghai.

P K Basu, director and chief economist, South Asia & India for Credit Suisse First Boston, discussing India's performance and its impact on global economy, said that the country should achieve a growth rate of 8 to 10 per cent over the next eight to ten years.

"Our presence in the international market is limited, though the presence could in some sectors is huge. We have been looking at the west more than we have been looking at the East," he said.

He said that India needed to build on its image and brand name with focus on quality.  He said the good thing about India was that its foreign exchange reserves grew by $22 billion in the last 12 months.

Referring to China, he said that it was currently over-investing and adding to overcapacity with fresh investments growing at the rate of 15 to 20 per cent.

But this was not sustainable in the long run and, thus, in the mid-term, China was a potential candidate for economic crisis.

India, he said, portrayed the stealth miracle. It still has the fastest growing economy among the world's democracies. India has achieved a current account surplus of $4.5 billion.

The services sector has turned out to be huge generator of surplus. Merchandise exports were still a hopeful case with growth of 11.5 per cent a year for the last 11 years since liberalisation.

India's share in the US exim trade had grown from 0.6 per cent in 1996 to 1.1 per cent now. In the next 18 months, India would become a net creditor nation which China already was.

"Overall outlook is pretty good. Industrial recover will pick up more. The next 25 years will be quite crucial for India.  I am sure India will achieve its destiny, though it will take another 60 years for India to have per capita GDP which US has today," he added.

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