India’s FDI Levels below Potential - IMF

According to the International Monetary Fund (IMF), although foreign investors are showing increasing interest in India, the country’s Foreign Direct Investment (FDI) flows are well below potential. IMF added that the Asian FDI levels, particularly in India, China, Indonesia, Malaysia and Vietnam, continued to rise, and the trend is expected to continue in the emerging markets in 2005.

The report indicates that India has received much attention after it emerged as a preferred outsourcing destination, and the sector is attracting substantial FDI inflows.

However, FDI has been hindered in India by a difficult investment climate, as well as by caps on FDI in certain sectors. Moreover, the growing inadequacy of India's infrastructure constitutes a major obstacle to private investment and export potential.

While China remains the predominant location for FDI inflows, there are some tentative signs of a reallocation of FDI inflows within Asia. Some investors are reassessing their investment plans in China and the authorities are slowing down approvals in several overheated sectors. There has also been a decline of interest in large new investments into Malaysia and Singapore, owing to higher local costs.

The report also noted that outward FDI from Asian emerging market countries is expanding rapidly. FDI flows from China, India, Korea, Malaysia, Singapore and Thailand have demonstrated a marked upswing.

IMF predicts that the higher level of FDI inflows to emerging market countries will continue in 2005 owing to favorable economic prospects, cross-border acquisitions activity and further privatization of state-owned companies. The investments are expected to concentrate in the oil and gas, telecoms and banking sectors.

The report forecasts that the Chinese and Indian companies will continue to want to secure natural resources, mostly from the developing countries, to fuel their own growth. In addition, many firms in emerging Asia see a number of competitive advantages in investing elsewhere in the region, including geographic proximity, cultural affinity, and the ability to operate in smaller niche markets.





Reported by India Daily