IT, BPO segments get just 5% of FDI inflows
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IT, BPO segments get just 5% of FDI inflows

By SiliconIndia   |   Friday, 23 April 2004, 07:00 Hrs
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MUMBAI: Barely 5% of the total foreign direct investment (FDI) in the country between 1996 and 2002 has been from IT and business process outsourcing, reports Economic Times.

According to the latest Global Development Finance Report 2004, India attracted of $1 billion worth FDI in the BPO segment during 1996-2002. This works out to 5% of the total FDI equity inflows of $20 billion during the period.

A back of the envelope calculation suggests that the share in 2003 is unlikely to be significantly different. The acquisition of Daksh by IBM, for around $150 million, is a recent case of FDI in BPO. The report also says that similar outsourcing by US companies has benefited Latin America , which has the added advantage of falling in the same time zones. In some cases, there is also a language advantage for companies that serve Spanish speaking customers.

In addition to these, Latin American countries boast of low labour cost and improved telecommunication infrastructure. However, the report does not elaborate on the amount of FDI in Latin America on account of outsourcing. The report points out that FDI in services has dipped in some of the emerging markets, but not in India where services FDI has been largely in telecom and financial sectors. The definition of services adopted in many countries include electricity, gas, water, transport, communication, construction, wholesale and retail trade and repairs, hotels and restaurants, transport, storage and communications, finance and insurance, real estate, renting, business services, public administration, defence, education, health, social services, social and personal service activities, and recreational, cultural, and sporting activities. However, many of these activities are still not liberalised in India .

The decline in FDI in services is particularly strong in Latin America and the Caribbean . FDI flows to the region’s service sector fell 53% in 2002. The decline was especially sharp in infrastructure (37%) and financial services (65%). Though precise sectoral figures were not available, anecdotal evidence suggested that the trend in the service sector continued in 2003, the report said. Services sector FDI in Latin America was also affected due to a deterioration in investment climate.




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