New Delhi: With the world economy getting back on track, foreign investment flows to India have shown a marked increase in recent months.
The government now needs to do more to ensure most of this money stays in the country for the long term, said panellists at a World Economic Forum session on growth opportunities in the Indian market. Failure to hold on to this foreign investment and attract more would hinder long-term growth prospects, they said.
“Quick capital has come back but longer-term FDI (foreign direct investment) has been slower in coming back,” said Ronald Kent, executive vice president, head of international listings, NYSE Euronext.
India has been ranked third in global foreign direct investments this year, following the economic meltdown, according to a report titled World Investment Prospects Survey 2009-2011 by the United Nations Conference on Trade and Development, or Unctad. It’s on track to remain among the top five most attractive destinations for international investors in the next two years, the report said.
Foreign direct investment in July was $3.5 billion (Rs16,310 crore), 56% higher than the year earlier, according to the ministry of commerce and industry.
In today’s global economy, India often competes for investments with countries in eastern Europe and Latin America. Implementing projects quickly and getting infrastructure on track are going to be critical in making India more of a draw for overseas investors.
While foreign investment has been averaging about $15 billion in the last two years, the country needs to move towards attracting upwards of $100 billion a year. Roads, power projects and airports have been identified as areas in dire need of investment. Unless this money comes in, the country’s auto industry will find it hard to capitalize on its recent success as an export hub for small cars, said Ashok Aram, managing director, Abraaj Capital.
Others cited India’s robust domestic savings that need to be deployed more effectively in infrastructure development. “If the Indian government could create a framework for deploying capital, the availability of capital would improve,” said Ankur Bhatia, executive director of Bird Group, India.
India’s savings rate is 37.7% of gross domestic product but the government crowds out insurance savings that are generally put to use in long-term projects. Then there are 40 million taxpayers but only 15 million have demat accounts that enable them to invest in the stock market, according to Bhatia.