The Hindu Business Line : Unctad optimistic about India’s FDI

New Delhi, Oct. 17 Growth in market-seeking foreign direct investment (FDI) to the Asian region should keep pace with rapid economic growth in the next few years, underpinned by the strong performance of China and India, the UN Conference on Trade and Development (Unctad) said. .

In its 2007 World Investment Report (WIR) released here , the Geneva-based UN outfit is also gung-ho about efficiency-seeking FDI “owing to the plans of several countries such as China, India, Indonesia and Vietnam to develop their infrastructure”. However, it also notes that even as India has shown huge potential for market-seeking FDI, it faces “a number of disadvantages that could impede progress in attaining its goal of raising annual FDI to $50 billion by 2010.”

Stating that during the first half of 2007, the value of cross-border mergers and acquisitions rose by nearly 20 per cent over the corresponding period in 2006, Unctad said FDI outflows from the region are also expected to keep growing, with the continued globalisation efforts of some Chinese State-owned enterprises and Indian privately owned conglomerates. “Aggressive acquisitions have placed some of the Chinese and Indian companies onto a fast track of internationalisation”, even as the experience of some Chinese companies highlights the risks inherent in this approach towards global expansion.

Among top-five

Quoting Unctad’s world investment prospects survey, it said that China and India rank among the five most attractive investment locations . FDI inflows to South Asia, it said, surged by 126 per cent amounting to $22 billion in 2006, mainly due to investments in India which received $17 billion or 153 per cent more than in 2005, equivalent to the total inflows to the country during the period 2003-05. Stating that the sustained income growth has made India attractive to market-seeking FDI with foreign retailers such as Wal-Mart also entering the market. A number of the US transnational corporations (TNCs) such as General Motors and IBM are expanding their presence in India, as are several Japanese TNCs, such as Toyota and Nissan. Private equity firms are also playing a role with the US-based Kohlberg Kravis Roberts & Co acquiring a controlling stake (85 per cent) of Flextronics Software with an investment of $900 million.

Pointing out that China and India are beginning to challenge the dominance of the Asian newly industrialising economies — Hong Kong (China), the Republic of Korea and Singapore and Taiwan Province of China as the main sources of FDI in developing countries, it said since 2004, their share of the total outflows from the Asian region as a whole has risen from 10 per cent to 25 per cent. India’s outflows were almost four times higher than those of 2005 with privately-owned conglomerates such as the Tata group dominating.

Traditional industries

Unctad noted that India is also gaining strength in attracting FDI in traditional manufacturing industries such as steel and petrochemicals. Its FDI inflows in manufacturing rose from $11 billion in the 2004-05 fiscal year to $17 billion in 2006-07. Taking a broader perspective, Unctad said global FDI inflows soared in 2006 to reach $1306 billion — a growth of 38 per cent with M&As continuing to account for a large share combined with increase in Greenfield investment. About 172 mega deals (worth over $1 billion) were recorded in 2006.

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