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Domestic policy change may attract higher FDI

Our Bureau

New Delhi , July 7

THE Economic Survey has reiterated that foreign investment was important not only for the funds they bring but also for technological upgradation, gaining access to global managerial skills and practices as well as to compete internationally with higher efficiency. And, it made a direct comparison between India and China in attracting foreign direct investment (FDI).

The Survey has said that further simplification of the domestic policy regime, rules and procedures is likely to attract higher foreign investments.

According to the Survey, though both India and China are rich in terms of natural resources, China fared over India in terms of higher per capita GDP and higher literacy and education rates making it attractive for market-seeking as well as efficiency-seeking investors. On the other hand, India enjoys supremacy in terms of technical manpower, particularly in information technology. India also has better English language skills, the survey notes.

According to the survey, FDI has contributed to the rapid growth of China's merchandise exports at an annual rate of 15 per cent from 1989 to 2001. In 1989, foreign-affiliated accounted for less than nine per cent of Chinese exports; by 2002 they provided half.

In India, by contrast, FDI has been much less important in driving export growth, except in information technology. FDI in Indian manufacturing had been and remains domestic market seeking. FDI accounted for only three per cent of India's export in the early nineties. Even today FDI is estimated to account for less than 10 per cent of India's manufacturing exports.

The survey also noted that FDI inflows in the country peaked to $4.74 billion in 2000-01 and went down to $3.73 billion during 2002-03 and further down to $3.57 billion in fiscal 2003-04. The overall decline in FDI in 2003-04 was principally on account of a sharp drop in net equity flows, it said.

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