FDI confidence dips, India’s rank slips

FDI confidence dips, India’s rank slips
ENS ECONOMIC BUREAU

New Delhi, Nov 20: While as many as 67 per cent of the 1,000 CEOs covered in a survey by international consultancy firm AT Kearney have a positive view on India as a foreign direct investment destination, a mere 14 per cent are ready to make fresh investments in the country.

“The Foreign Direct Investment Confidence Audit: India” report, released by AT Kearney here on Monday, revealed that 61 per cent of the companies with existing investments in India expressed confidence in the Indian market and said they would like to increase their investment.

India ranks 11 on the “Foreign Direct Investment Confidence Index”, which is five points down the previous survey. In the June 1999 survey India was pegged at the 6th position.

Speaking about the investment environment in India, AT Kearney vice president and managing director, global business policy council, Paul A Laudicina said “when it comes to FDI, India is at an important crossroads - investors are generally sanguine about the country, but reluctant to invest because of a perception that it has not done as much as it needs to reduce fundamental obstacles to investment.”

“As the Indian government commits itself to increase the inflow of FDI, our study suggests that the country is poised to realise this promise, particularly if it continues to improve the investment environment,” he said.

The survey found that 1,000 CEOs across the globe cited domestic market factors, both market size and market potential, as the principal driver for investing in India. Thirty-three per cent of respondents cited India’s market as the main factor driving investment decisions. “Our survey projects that FDI is typically driven by two critical factors: market size and market potential,” he said, adding that a population over a billion and growth rates averaging 6% over the past decade should give India considerable advantages.

Wages and rule of law are the two other factors cited as important investment decision drivers in India. The availability of skilled labour force is considered as one of the most important factors driving investment decision. About 13 per cent of the respondents opined government’s incentives and infrastructure development opportunities as top-of-mind investment decision drivers.

The survey was based on in-depth private interviews with senior executives of 1,000 companies across the world, covering all major sectors of investment and accounting for more than 10 per cent of India’s actual stock of FDI.

“The key change in India’s capital account in the 90s is in relation to foreign investment inflows. These inflows were negligible until 1992-93. Since then they have increased from $ .55 billion in 1992-93 to $ 5.2 billion in 1999-2000. Direct investment increased from 0.3 billion to $ 2.1 billion in 1999-2000. FDI has shown a steady increase. Even in the aftermath of East-Asian crisis, there has been no decline. The major sector in which such investments have been made are chemical and allied products, Engineering and electronic and electrical equipment. FDI has always been preferred by countries because of its long term commitment. It also generally adds to the productive capacity of the capital receiving countries,” former RBI Governor C Rangarajan had said in a recent lecture.

FDI set a new record in 1999 when global inflows touched $ 865 billion. FDI flows to developing countries reached a level of $ 208 billion. FDI flows to developing countries reached a level of $ 208 billion. This was an increase of 16 per cent over 1998.

The contribution of FDI inflows to total capital flows increased from an average of only seven per cent during the first half of the 90s to around 33 per cent during 1995-2000. Portfolio inflows increased from an average from 18 per cent to 28 per cent over the same period. Thus the share of the non-debt creating inflows comprising of direct investment and portfolio investment and portfolio investment in the total capital inflows increased to 61 per cent during 1995-2000.