'Higher GDP growth may push up FDI inflows to India'

Thursday, 04 September 2003, 19:30 IST
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Optimism of higher economic growth in India is likely to revive foreign investors' confidence and see better inflow of foreign direct investment (FDI) in the latter half of the year, a top economist said Thursday.

NEW DELHI: "So far this year FDI has seen a dip as a consequence of the drop in industrial growth and GDP growth in 2002-03. This will reverse by year-end once investors regain confidence in India's stronger economic growth and stimulate FDI inflows," said Nagesh Kumar, director-general of Research and Information System for the Non-Aligned and other Developing Countries (RIS). Presenting the UNCTAD World Investment Report 2003 at the United Nations Information Centre (UNIC) here, Kumar expressed optimism that expectations of India achieving 6.5 percent GDP growth this year as against 4.2 percent during 2002-03 will see FDI inflows reaching levels of last year despite the sharp drop in global investment flows. As against total FDI inflows of $4.07 billion in 2000-01, India logged a record $6.1 billion in 2001-02. Last year, the inflow dropped to $4.66 billion, as per the revised definition. In the first four months of the current fiscal from April-July, India has witnessed a steep 56 percent drop in FDI to $529 million down from $1.22 billion in the corresponding period in 2002-03. "There is a good corresponding link between industrial growth and FDI inflows. Foreign investment results from growth and contributes to growth," said Kumar. Globally the downturn in economic growth has seen FDI flows dipping 40 percent in 2001 and a further 21 percent in 2002 to $651 billion, the UNCTAD report said. The annual report forecasts that global FDI flows this year are set to stabilise at around the depressed levels seen in 2002 but "a rebound is likely in 2004" based on the optimism of a revival in economies of the developed countries like the U.S. "The drop in FDI flows raises concerns about developing countries being able to achieve the Millennium Development Goals of halving global poverty by 2015," said Feodor Starcevic, director of UNIC. With global FDI flows falling to half of the peak in 2000, the report fears that this would translate into smaller development funds for the developing countries and impact the goal of removing poverty and hunger. The slump of 22 percent in FDI flows in the developed countries was concentrated in the U.S. and Britain, which together accounted for 54 percent of the drop in 108 countries. Among the developing countries, Africa, South America and the Caribbean faced the steepest decline. Flows to Asia were impacted 11 percent, with China continuing to attract record inflows. It was in fact the largest FDI recipient globally. China has been attracting around $40 billion FDI annually. According to Kumar, it is not just numbers but also the quality of FDI flows that has been benefiting China and helping it attract more investment. Currently 45 percent of Chinese exports are through multinationals, which account for 80 percent of the high-tech exports. In India's case, the share of multinationals in the total exports is just around three percent. During 2002-03, India's exports crossed a record $52 billion. In analyses of the reason for the drop in global FDI flows, the report states that cross-border mergers and acquisitions (M&As) that had driven the investment flow in the 1990s has dipped sharply. "In fact, most of the decline in FDI came from a dramatic drop in cross border M&As from $1.1 trillion in 2000 to $594 billion in 2001 and $370 million in 2002. The average value per transactions also slid," the report said. Further, reflecting the decline in FDI inflows, growth in operations of 100 top multinationals in the world has slowed, leaving little funds for investment and expansion, the report said.
Source: IANS