Basking in the FDI sun PDF Print E-mail
Friday, 16 October 2015 01:12
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Important to take advantage of the China slump


After years of bad news on FDI, India appears to have turned the corner, judging by the spate of reports in recent weeks. EY’s global survey of more than 500 investors has 32% voting for India as the topmost country to invest in the next three years; China gets 15% and North America only 10%—both have been large magnets for FDI. After collapsing from $306 billion in 2008 to $143 billion in 2009, the US recovered to $230 billion in 2013 before collapsing to $92 billion in 2014. China is steady at $110-120 billion annually since 2010. Due to this slump, the Financial Times came out with a report saying that, at $31 billion in H12015, India topped global FDI charts, $3 billion ahead of China and $4 billion ahead of the US. And a day before the EY study, a Nasscom-Zinnov report said India has moved up to the third position—behind the US and the UK—in the ranks of global start-up ecosystem, with over 4,200 start-ups so far in 2015 and a likely $5-billion funding. Some of the innovation is world-class—Team Indus, the only Indian entry to make it at the Google Lunar X Prize competition, in which a robot will be landed on the moon and send data back to earth, has already won $1 million in the landing category.

Reconciling these reports with the manner in which domestic investment has collapsed is difficult, and, in any case, FDI was only 8% of total investment in FY15. A detailed read of the EY study offers interesting insights. There are no major improvements in labour or domestic market conditions, though the macro is undoubtedly better; political stability is a big plus, but investors would probably moderate expectations given the Rajya Sabha chokepoint. The biggest plus seems to be the big spending in roads, railways and new cities but, once again, EY investors who have welcomed ‘legislation for land acquisition’ should know this is far from happening. Intriguingly, tax terror, which looms in most investors minds, does not come up in the EY report. None of this is to diminish the greater foreign interest in India—the fact that a Foxconn wants to invest here is symptomatic of a big change, as is Softbank’s $20 billion in solar power. There are definite attempts to ease doing business, too. While translating that intent into investment will take large reforms, it is important to keep in mind the US and China aren’t going to be down forever—indeed, the former is already looking up.


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