India also key source for foreign investment: Unctad
Wednesday, 17 October 2007, 07:00 Hrs
New Delhi: India is not only a major destination for foreign investment but has also emerged as a key global investor, powered by big-ticket takeovers, says the United Nations Conference on Trade and Development (Unctad). India attracted foreign investment inflows worth $16.88 billion in 2006, against $6.67 billion in the previous year - a jump of 153 percent. Outward investment amounted to $9.67 billion against $2.49 billion in 2005, the Unctad says. "India received more foreign direct investment that ever before - equivalent to the total inflows to the country during 2003-05," says the agency's annual World Investment Report released globally Tuesday. "China and India are beginning to challenge the dominance of the Asian newly industrialising economies - Hong Kong, Republic of Korea, Singapore and Taiwan Province of China - as main sources for foreign direct investment," it adds. "Since 2004, their share in the total outflows from the Asian region as a whole has risen from 10 percent to 25 percent," it says, and adds: "India's outflows were almost four times higher than those of 2005." Accordingly, India's ranking on the outward foreign investment performance index jumped from 65 in 2005 to 56, while its ranking on the inward foreign investment performance index improved from 121 to 113. The report says, unlike China, where the outflows were driven by the expansion of state-run enterprises, the booming outflows from India have been dominated by privately owned conglomerates such as the Tata group. "With a total investment of $11 billion, for example, Tata Steel acquired Corus group in early 2007, creating Tata-Corus, the world's fifth largest steel-maker by revenue," the report says. The Corus takeover, the report adds, is not only among a series of cross-border mergers by the Tatas, but also the second largest ever from a developing nation, after the deal between a Brazilian mining firm and a Canadian rival in 2006. "The main motives for Indian companies to undertake cross-border mergers and acquisitions are to gain access to new technologies and competencies and to build stronger positions in the global markets," it says. In terms of inward flow of capital, the report says India is gaining strength in attracting foreign investment in traditional manufacturing industries such as steel and petrochemicals, rising to $17 billion in 2006-07 from $11 billion. The report says robust economic growth has led to improved investor confidence, resulting in companies like Wal-Mart starting to enter India and others like General Motors, IBM, Toyota and Nissan expanding their presence. "Private equity firms are also playing a role. For instance, Kohlberg Kravis Roberts and Company of the US acquired a controlling stake of 85 percent in Flextronics Software System Ltd with an investment of $900 million," it adds. The report also warns that while India shows a huge potential for attracting foreign companies that are seeking newer markets to enter, there are also a number of disadvantages that could impede the target of $50 billion by 2010. The report primarily lists two such disadvantages - poor infrastructure that is preventing efficient multinational companies and non-acceptance of foreign firms by local communities, despite government's efforts.