The liberal investment regime, rapid growth of the economy, strong macro economic fundamentals, progressive de-licensing of sectors and the ease in doing business has attracted global corporations to invest in India
And consequent to policy changes and procedural simplifications, FDI equity inflows have registered a phenomenal upswing. FDI inflows have recorded over five-fold increase in the last three years, from US$ 2.2 billion in 2003-04 to US$ 15.7 billion in 2006-07. Simultaneously, FDI share in India's GDP has increased from 0.77 per cent to 2.31 per cent.
Significantly, FDI has come to play an increasing role in the economic growth of the country. The share of FDI in total investment has more than doubled from 2.55 per cent in 2003-04 to 6.42 2006-07.Destination India
According to the AT Kearney FDI Confidence Index 2007, India continues to be the second most preferred destination for attracting global FDI inflows, a position it has held since 2005. Similarly, UNCTAD's World Investment Report, 2005 considers India the 2nd most attractive investment destination among the Transnational Corporations (TNCs).
Clearly, India is in the reckoning. And the figures appear to be improving by the day. FDI equity inflows which totaled US$ 5.5 billion in 2005-06 grew by almost three times to US$ 15.7 billion in 2006-07. In fact, going by the international best practices for calculating FDI would place India's total FDI at US$ 19.5 billion in 2006-07 against US$ 7.72 billion in 2005-06, representing a whopping 153 per cent growth rate.
This huge inflow of FDI has in turn reversed the past trend, with FDI inflows overtaking the portfolio investment inflows by almost US$ 5.6 billion in 2006-07, according to the RBI's report on International Investment Position.
FDI inflow continues apace in the new fiscal with total FDI during April-February 2007-08 recording a growth rate of 70 per cent to US$ 20.1 billion from US$ 11.88 billion in the corresponding period last year, taking the cumulative FDI inflows during August 1991 to February 2007 to US$ 73.64 billion.
In fact, the US$ 5.67 FDI inflows recorded in February 2008 was the highest-ever during any month since 1991 and more than the entire annual inflows from 1991-92 to 2004-05.
This surge in FDI is likely to further boost India's attraction as an investment destination. Already, India recorded a higher change in Investor outlook than China in the latest FDI Confidence Index of A T Kearney, implying bridging the gap between the two countries in terms investment attractiveness. Also, India has emerged as the preferred investment destination for European investors, ahead of even china.Sector-wise FDI
A large portion of the FDI flows into skill intensive and high value-added services industries, particularly financial services and information technology. Service sector and computer software and hardware industry together account for about 35.49 per cent of the total FDI into India between April 2000 to December 2007.
India, in fact, dominates the global service industry in terms of attracting FDI with its unbeatable mix of low costs, deep technical and language skills, mature vendors and supportive government policies. India topped the AT Kearney's 2007 Global Services Location Index, emerging as the most preferred destination in terms of financial attractiveness, people and skills availability and business environment.
Global investors have also shown increasing interest in other sectors as well. Particular amongst them have been telecommunication, energy, construction, automobiles, electrical equipment among others. For example, all the five leading global telecom companies have made significant investment in India. Similarly, leading automobile companies have set up their manufacturing base in India.
Country-wise, Mauritius has been the leading nation for FDI inflows into India, followed by USA, UK, Singapore, Netherlands and Japan during April 2000 to December 2007. It is to be noted that Mauritius pre-eminence has been due to its stature as a tax haven and most volume of FDI inflows through Mauritius has been from the USA.Some Investments
The surging economy has resulted in India emerging as the fastest growing market for many global majors like HSBC, Dell among others. This has resulted in many companies lining up aggressive investment plans for the Indian market.
- Arcelor Mittal, the world's largest steel producer, plans to invest US$ 20 billion for building two 12 million-tonne steel plants.
- Vodafone, the world's second-biggest mobile firm, plans to spend US$ 2 billion a year on capital expenditure.
- DailmerChrysler India Pvt Ltd, makers of Mercedes-Benz cars, has decided to set up a new plant in Pune.
- Nokia plans to invest US$ 170 million to ramp up its production unit in Chennai.
- US-based hotel chain Hampshire Hotels and Resorts LLC plans to develop 25 hotels at an investment of US$ 1.26 billion.
- Teva Pharmaceutical Industries, the world's largest manufacturer of generics, plans to invest over US$1 billion.
In fact, the advantage of setting up a base in India is turning a host of companies like Ford, Suzuki, Cisco, Mercer and LSG Sky Chefs among others to make India as a hub for their global operations.Government Initiatives
The sweeping economic reforms undertaken by the government aimed at opening up the economy and embracing globalization have been instrumental in the surge in FDI inflows.
- Restructuring the Foreign Investment Promotion Board.
- Establishment of the Indian Investment Commission to act as a one-stop shop between the investor and the bureaucracy.
- Expanding the number of industries for which 100 per cent FDI is allowed through the automatic route.
- Progressively raising the FDI cap in other sectors like telecom, aviation, banking, petroleum and media sectors among others.
- Removal of the investment cap in the small scale industries (SSI) sector.
With government planning further liberalization measures across a broad range of sectors and continued investor interest, the inflow of FDI into India is likely to further accelerate. Already, buoyed by the growth in FDI into the country, the government has put a target to attract US$ 30 billion in the current financial year (2007-08).