India narrowing gap with China on FDI inflows: Nomura report

  • PTI, New Delhi
  • Updated: Apr 26, 2016 13:39 IST
A file picture taken on September 26, 2012 shows shoppers browsing through the products of a newly opened Bharti Wal-Mart Best Price Modern wholesale store in Hyderabad. (AFP)

India may this year surpass China in attracting foreign direct investment, in terms of percentage of its GDP, as the gap in inflows between the two has been narrowing on the back of ongoing reforms in the country, says a Nomura report.

According to the Japanese financial services firm, the trend of rising inflows to India and moderating inflows to China began in 2013 and FDI inflows to India can surpass those into China this year.

“We believe FDI inflows to India (as a percentage of GDP) can surpass those into China in 2016, as India already has large investment commitments from MNCs in sectors like electronics, solar energy, auto, defence and railways,” Nomura said in its research report.

FDI inflows to India are picking up. They rose from 1.7% of GDP in 2014 to 2.1% in 2015, narrowing the gap with China (2.3% of GDP in 2015).

These trends of rising inflows to India and moderating inflows to China are likely driven by a mix of pull and push factors, such as divergent growth outlooks, ongoing FDI liberalisation/economic reforms in India and rising labour costs in China, Nomura said.

Rising FDI inflows not only provide a stable source of financing the current account deficit, they also bring in technical know-how, which can boost India’s productivity growth in coming years, the report said. “They can also be viewed as early evidence that reforms in India are bearing fruit,” Nomura added.

Foreign direct investment into India touched the “highest ever” mark of 51 billion dollar during April-February period of last fiscal ended March 31, according to DIPP secretary Ramesh Abhishek.

In fiscal year 2011-12, India had attracted FDI worth 46.55 billion dollar. In financial year 2014-15, it was 44.29 billion dollar. This FDI includes equity, re-invested earnings and other capital.

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