Apr. 11 – Despite a recent downturn in FDI inflows, India has remained the second most popular investment destination in the world, riding closely on China's heels, according to Nomura India.
Attributing the temporary decline primarily to global factors, Nomura India Vice-President and economist Sonal Varma said other emerging markets also experienced a noticeably sharp fall in FDI inflows in the wake of the 2008 Global Financial Crisis. Unlike India, however, they were quick to recover.
"Of the US$12-billion decline in FDI inflows between 2008 and 2010, around 60 percent was due to weak inflows into service spaces like computer software and hardware, financial services, banking, and construction," Varma said. "The sharp drop in inflows into banking and other financial services is unsurprising as the crisis led firms to restructure operations."
As a result, the share of infrastructure in total FDI inflows rose to 24.7 percent in 2010, from 16.3 percent in 2007. Manufacturing share rose to 32.1 percent from 19.6 percent, despite a fall in the absolute numbers in FY11, Varma said in her report.
Although fears of overcapacity, credit crunch, fragile growth and a general sense of increased risk aversion caused corporations to cut down on global investment, environmentally-focused policies hurt investor confidence locally.
"Delay in framing a land acquisition law has also hurt. In addition, the country's cost-competitiveness may have taken a hit due to the deteriorating quality of infrastructure, elevated inflation, shortage of skilled labor, rising wage costs and corruption," Varma pointed out.
Varma said that the fall was not as significant as it was being made out, and that normal levels of FDI inflow growth should return in the near future.
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Source: 2point6billion.com - Foreign Direct Investment in Asia
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