fdi in india

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http://www.business-standard.com/today/story.asp?Menu=27&story=14390

Foreign interest, Published : May 15, 2003 The figures on foreign direct

investment (FDI) inflows into India were, till recently, a source of

embarrassment for the government. For all the talk of the country’s vast market

and its huge middle class, and in spite of all the liberalisation measures

taken, the inflow of FDI remained a stubborn trickle. The real embarrassment

was when India’s FDI trickle was compared with the flood of overseas money into

China. But ever since a study by the International Finance Corporation pointed

out that round-tripping (where domestic funds taken out of the country come

back as FDI) accounted for about half of China’s FDI inflows, much of the

shyness about India’s numbers has melted away, especially when the two numbers

are seen in relation to the respective GDP figures. Also, unlike most

countries, India’s official data on FDI excludes such items as reinvested

earnings, subordinated debt, short and long-term loans, investments made by

foreign venture capital investors, and so on. In short, India’s FDI is vastly

under-reported. That is why the estimate of $4 billion worth of FDI inflows in

2002-03 will probably translate into a figure nearer $10 billion if based on

the revised standards. India has always occupied plenty of mindspace among

global investors, the well-known factors in its favour being its market size,

the rule of law, its market economy, its English-speaking population, its low

wages, and the technical proficiency of its workforce. Inhibiting factors for

FDI usually cited in any survey include bureaucratic procedures, slow

decision-making, corruption and poor infrastructure. While these are admittedly

hurdles, the fact is that India has world class software services and business

process outsourcing companies, and increasingly, companies that are competitive

in manufacturing as well, in fields as diverse as aluminium, petrochemicals,

auto ancillaries, pharmaceuticals and two-wheelers, to name a few. In recent

times the cost of capital has come down dramatically, companies have been able

to shed excess staff without a fuss, militant trade unionism is more or less

dead, the world’s largest highway investment project is under way to improve

road infrastructure, and the reservations for small-scale industries have been

removed in many sectors. India’s banking system is on a much firmer footing

than China’s, its non-performing assets are now much lower than what they were

a few years ago, and the recent foreclosure law will only strengthen the system

further. India’s stock markets are state of the art so far as technology and

settlement systems are concerned. And in telecom, the growth has been truly

phenomenal. To be sure, these positives can sometimes be outweighed by the

negatives — the failure of the government to reform itself, the politicking

that holds back reform, the high fiscal deficits. But with competitive

pressures increasing everywhere, companies have no alternative but to outsource

to cheaper locations on the one hand and find new markets on the other. The FDI

figures for 2002-03 confirm that FDI inflows are on the rise and reflect

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