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BW Businessworld

Still Shining

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Has India's investment climate improved? It has, if you go by a survey of transnational corporations (TNC) conducted by the United Nations Conference on Trade and Development (UNCTAD). As per the survey, India is the third best prospective global destination for foreign direct investment (FDI). China and the US are at No. 1 and No. 2, respectively, in the list of top 10 prospective host economies chosen by 174 TNCs for the 2012-2014 period.
 
In 2011, FDI in India was $32 billion or four-fifths of the total FDI inflows to south Asia, says the World Investment Report 2012, which carries the results of the UNCTAD survey.

"India saw a 50 per cent jump in greenfield investments to 603 projects in 2011," says Nagesh Kumar, chief economist at the United Nations Economic and Social Commission for Asia and the Pacific.

But why was the growth in FDI inflow not felt in the economy? One reason could be that the growth did not translate into an equivalent expansion of productive capacity. "Much of it (FDI inflow) was due to cross-border acquisitions and the increased amount of cash reserves retained in foreign affiliates," notes the report.

While FDI in India due to M&A (mergers and acquisitions) shot up in 2011, Indian TNCs became less active in acquiring overseas assets. The total cross-border M&A buyouts plunged in the three core sectors: from $5.2 billion to $111 million in the primary sector, from $2.5 billion to $1.5 billion in manufacturing, and from $19 billion to $4.5 billion in services. 

However, India remained the largest investor in least developed countries, contributing $4.2 billion to 39 projects.

That could be a new twist in the India growth story.

(This story was published in Businessworld Issue Dated 16-07-2012)