India is world’s No. 2 FDI nation

In 2004, India’s FDI inflows reached $5.3 billion as compared to China’s $60.6 billion.

While China has held the first spot since 2002, a strong increase in investor interest in India is a more recent development, the survey says. Despite India’s successful positioning as a business processing and IT outsourcing hub, these activities often translate into Indian service sector exports via third-party transactions — not FDI, the survey said.

India’s technology and IT-oriented economy has received fewer capital-intensive FDI flows relative to China, whose entire manufacturing base has been, in large part, established by foreign MNCs.

‘‘India is on the cusp of an FDI take-off. However, for India to evolve into an FDI capital-intensive hub, the government must overcome narrow business interests, consistently addressing the country’s infrastructure, logistics, and regulatory barriers,” said Paul Laudicina, MD of the Global Business Policy Council, which conducts the study.

The main reasons for FDI inflows to India to reach $5.3 billion is the government reforming the Foreign Investment Promotion Board, and setting up of the Indian Investment Commission to act as a facilitator between the investor and the bureaucracy as a “one-stop-shop”.

Financial services investors upgraded India from fourth to second-most attractive FDI location. Relaxation of ownership restrictions in telecommunications have also started to attract FDI. However, wholesale and retail sector is optimistic despite uncertainty surrounding liberalisation.

Meanwhile, Eastern European markets experienced a sharp increase in FDI confidence levels, with Poland (5), Russia (6), Hungary (11), the Czech Republic (12), Turkey (13) and Romania (25) all rising in the rankings and all achieving record highs save Poland.

Investors from highly competitive light manufacturing segments such as electronics, food and textiles are less likely to commit FDI in US and instead prefer low-cost, fast-growing emerging markets, the survey said.