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"World Investment Report 2005" On Attracting Foreign Direct Investment Into IndiaBy AMITSINGH, Section Gurgaon Real Estate Property
The World Investment Report 2005 in its survey of the flow of foreign direct investment in various countries has named India as one of the three most favoured destinations for foreign direct investment. The survey has put China, India and United States as the most favoured destinations for FDI.There are a number of factors responsible for this. Among them are high growth of the Indian economy, large foreign reserves, low inflation, stable political conditions and an appreciating rupee have all contributed to this confidence building. Besides, strong macroeconomic fundamentals and opening more sectors also helped.
Yet the inflows are well below potential, mainly due to policy ambiguity and lack of infrastructure facility. Many studies have recently indicated that there is high degree of interest in making additional medium and long-term investment in India. Most of them have stressed the need for further rationalisation of degree of privatisation and deregulation. However, we are far behind China and other developed countries in terms of the volume of FDI. India's FDI inflow was $5.33 billion in 2004 compared to 60$ billion of China, $96 billion of US and $ 78 billion of UK. Of the total flows of $148 billion to Asia, China alone took in $60.6 billion in 2004. That we are far behind China in FDI is not a new thing, which the report has indicated. There are a number of factors responsible for this. We have opened up our economy after China. Secondly the process of the liberalisation has been very slow. The bureaucratic mind-set and red tapism has been changing very slowly. As a result while other Asian countries have marched ahead we continue to limp. Given the fact that government now aims to attract $150 billion in next decade, it is necessary to step up the efforts. The government needs to further open up sectors such as petroleum, retailing, insurance, real estate and construction for FDI. It is pertinent to note that FDI is the most preferred the form of investment for any economy because it comes with long-term commitments, unlike investment made by foreign institutional investors in the capital market which comes and goes depending on the rate of return. The report has reminded that there is much to learn from China. For instance it tops the list with supplies of talented manpower, large number of technology parks and greater possibility of cost-reduction. If India has to compete successfully it needs to further rationalise its policies on tax structure, trade barriers, investment, infrastructure development, labour reforms and greater thrust on privatisation and deregulation. Efforts need to be made to minimise processing time taken for permits and open more trade options.
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