The global financial and credit crisis has added new risks to the world economy threatening to dampen global foreign direct investment (FDI) flows, but India would still remain a hotspot for global investors, experts said.
A recent United Nations Conference on Trade and Development (UNCTAD) report said India is the second most preferred destination for foreign direct investment, ahead of US, UK and Germany but below China.
“During April to July 2008, FDI worth $12 billion came into the country, which is pretty decent,” said D.K. Joshi, principal economist of credit rating and consulting firm Crisil.
India registered 17 per cent increase in FDI inflows last year on the back of robust economic growth, improved investment environment and further opening up of telecommunication, retail and other sectors.
The liquidity crunch will pull down worldwide foreign direct investment flows by 10 per cent this year, although FDI flows to the developing world would remain fairly stable.
Earlier this year, the government had announced major changes in the FDI policy, raising investment limits in several key sectors including real estate, petroleum refining, commodity exchanges, mining and civil aviation.
The policy review has been on the works for the last few months amidst hopes of attracting FDI of over $30 billion in the current financial year, much higher than last year’s $16 billion.
Delhi-based economist TK Bhaumik said FDI is driven largely by fundamentals of the economy, which in India’s case were strong. “The global financial meltdown is unlikely to have any major impact on the FDI inflow.”