India has emerged as the world’s second most attractive investment hotspot this year, behind China, but ahead of the United States and Russia, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2007 released on Tuesday.
Foreign direct investment (FDI) inflows to South Asia surged by 126 per cent, amounting to $22 billion in 2006, mainly due to investments made in India.
The country received more FDI that ever before ($17 billion, or 153 per cent more than in 2005). “Rapid economic growth has led to improved investor confidence in the country… The sustained growth in income has made the country increasingly attractive to market-seeking FDI. Indeed, foreign retailers such as Wal-Mart have started to enter the Indian market. A number of US transnational corporations, such as General Motors and IBM, are rapidly expanding their presence in the country,” the report said.
It said that India and China are emerging as major players in terms of FDI outflows as well.
“They are beginning to challenge the dominance of the Asian newly industrialising economies (NIEs) — Hong Kong (China), the Republic of Korea, Singapore and Taiwan. As the main sources of FDI in developing Asia,” it said.
Rapid economic growth in South, East and South-East Asia is likely to continue. The region may become more attractive to “efficiency-seeking” FDI, due to the plans of several countries such as India and China, Indonesia and Vietnam to develop their infrastructure.
India’s outflows were almost four times higher than those of 2005. Unlike China, where FDI outflows are driven by overseas expansion of government-owned companies, outflows from India have been dominated by privately owned conglomerates, such as the Tata Group.
“The emergence of China and India as important sources of FDI, coupled with active merger and activities by investors based in the Asian NIEs, particularly Singapore, has led to increased FDI flows from Asia to developed countries,” the report said.
Global FDI inflows surged to $ 1,306 billion in 2006.