Author:
Publication: The Business Standard
Date: May 15, 2003
URL: http://www.business-standard.com/today/story.asp?Menu=27&story=14390
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 growing optimism about the
Indian economy.
