India Emerges Second-Biggest FDI Magnet

NEW DELHI: India has emerged as the second most-attractive location after China, ahead of the US and Russia, for global foreign direct investment (FDI) in 2007. According to Unctad’s world investment report, released here on Tuesday, India’s ranking in inward FDI performance index has also improved to 113 in 2006 from 121 in 2005. China is the most preferred investment location, followed by India, the US, the Russian Federation and Brazil, the report said.

The share of India and China in total global FDI outflows has also risen. While both accounted for 10% of total FDI outflows in 2005 in the Asian region, it increased to 25% in 2007. While China’s outflows increased 32% to $16 billion in 2006, Indian outflows witnessed a four-time rise since 2004.

On the increased flow of FDI into India, the report pointed out that while foreign retailers such as Wal-Mart had started to enter the Indian market, a number of US companies such as General Motors and IBM are rapidly expanding their presence in the country. So are several large Japanese MNCs such as Toyota and Nissan. Global FDI inflows soared in 2006 to reach $1,306 billion, showing a growth of 38%.

Commenting on the rising outflow of FDI from the two countries, the report said both China and India are throwing up competition for countries like Hong Kong (China), the Republic of Korea, Singapore and Taiwan as the main sources of FDI in developing Asia.

Interestingly, while India’s outflows have been dominated by privately-owned corporates such as Tata group (Tata-Corus deal), in China FDI outflows are mainly driven by the international expansion of state-owned enterprises due to progressive government policies. Tata Steel acquired Corus Group in early 2007, creating Tata-Corus — the world’s fifth-largest steel maker.

In terms of locational choice for foreign investors, China polled 52% of the respondents in the Unctad survey, followed by India with 41%. The US received support of 36% and Russia 22%, followed by Brazil with 12%. China’s outward FDI stock reached $73 billion in 2006, the sixth-largest in the developing world, according to the report. China’s major chunk of overseas expansion involves considerable investment in other developing and transition economies, the report says.

The emergence of China and India as important sources of FDI, coupled with active M&A activities by investors based in the Asian newly-industrialising economies (NIE), has led to increased FDI flows from Asia to developed countries as well.

India was the fourth-largest recipient of FDI during 2005-06, with China and Hong Kong (China) remaining on top. Singapore was ahead of India at the third position. “India registered a substantial increase in FDI amounting to $17 billion,” the report said. Due to increased investments in India, FDI inflows to south Asia surged 126%, amounting to $22 billion, in 2006.