India 2nd Favourite Destination For FDI

NEW DELHI: India has emerged as the second hottest FDI destination of the world, next only to China, but ahead of Russia and Brazil.

While large markets along with cheap labour were driving transnationals to invest in India and China, United Nations Conference on Trade and Development's (Unctad) World Investment Prospects for 2007-09 has put US, which reclaimed the top slot as the biggest FDI recipient, as the third preferred destination.

The World Investment Report 2007, released on Tuesday, pointed to the interest shown by foreign retailers in India as a possible sector for inflows. In addition, poor infrastructure and banking sector liberalisation and the gaining strength in manufacturing sectors like steel and petrochemicals were flagged.

A 153% rise in FDI inflows during 2006 to $17 billion helped India overtake Thailand, Indonesia and South Korea and emerge as the the fourth biggest recipient in Asia, behind China, Hong Kong and Singapore.

Though the report appeared bullish on India due to the interest shown by the likes of Wal-Mart, which is entering the country, and expansion by auto giants, it also warned of possible hurdles which would make it tough for India to reach the annual inflow target of $50 billion by 2010.

The report said poor infrastructure could be a roadblock, while pointing out that FDI projects "are not necessarily welcomed by local communities". The statement was probably a reference to the resistance being faced by investors like Posco which intends to invest $12 billion in setting up a steel plant in Orissa.

But it is not FDI inflows alone which found a mention, Tata's $11 billion acquisition of Corus has helped India emerge as the third biggest source of outflows from Asia, after Hong Hong and China, and overtake Singapore, Taiwan, South Korea and Malaysia. If it was oil companies which led the Chinese and Russian overseas hunt, Indian companies were undertaking cross-border M&As to gain access to new technologies, competencies and to build stronger positions in global markets, it said.