India's rising share in world FDI flows

By Our Special Correspondent

NEW DELHI, MARCH 24. Liberalisation of the Indian economy and an attractive foreign investment regime has resulted in India's share in total flow of foreign direct investment (FDI) to Asia and the Pacific trebling during 1995-98. According to a study by the United Nations Conference on Trade and Development (UNCTAD), India's share in the total flows to the Asia and the Pacific jumped from 1.1 per cent to 3.3 per cent during this period whereas the region's share in world annual average flows declined from 20 per cent to 18 per cent.

The study has also listed out some of the measures taken by India to facilitate the inflow of FDI. For instance, as of March this year, India has concluded 37 bilateral investment treaties as a means of promoting and protecting FDI and fostering economic cooperation. Also, some 72 double taxation treaties for further improving the investment climate have also been signed by India. The share of the developed and the developing countries in each of these treaties is more or less equal, the study points out. India has also been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1994.

With its large domestic market, India has attracted FDI predominantly from developed countries such as the U.S., the U.K. and Germany which accounted for 86 per cent of the FDI stock in 1995. In this 86 per cent, about 24 per cent of the investment originated from the U.S.. On an average, three-fifths of the annual flows from the U.S. during 1994-98 went to the services sector such as banking and finance. From the East Asian countries, South Korea has emerged as an important source of FDI destined for India.

The study found that the manufacturing sector continued to attract significant amounts of FDI. In 1995, for instance, it represented as much as 83 per cent of the total FDI stock, dominated by machinery and equipment, electrical and electronic equipment, motor vehicles and transport equipment and chemicals and chemical products.

The UNCTAD also found that in the wake of the 1998 financial crisis that affected several major East and Southeast Asian outward investors, FDI to India registered their first decline in 11 years, but remained above the 1996 level. Preliminary estimates for 1999 suggest that inflows into India remained firm.

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