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Business News/ Politics / Policy/  FDI flows likely to remain subdued but India may see rise
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FDI flows likely to remain subdued but India may see rise

A UNCTAD report ranks India as the third most attractive foreign investment destination, behind China and the US

India may see 15% growth in FDI this year as changing government policies draw investors to the service and manufacturing sectors. Photo: Hemant Mishra/Mint (Hemant Mishra/Mint)Premium
India may see 15% growth in FDI this year as changing government policies draw investors to the service and manufacturing sectors. Photo: Hemant Mishra/Mint
(Hemant Mishra/Mint)

New Delhi: Foreign direct investment (FDI) flows globally are likely to remain subdued in the current year due to sluggish economic activity though India could see an uptick, according to a report by the United Nations Conference on Trade and Development (UNCTAD) released on Tuesday.

India may see 15% growth in FDI this year as changing government policies draw investors to the service and manufacturing sectors, said Nagesh Kumar, chief economist at the United Nations Economic and Social Commission for Asia and the Pacific, while releasing the World Investment Report for 2013.

FDI in India declined 29% to $25.5 billion in 2012—it contracted 18% globally to $1.35 trillion—due to policy uncertainties and fragile economic conditions.

The report ranked India as the third most attractive destination for foreign investment behind China and the US, based on a survey of 500 global companies.

India has taken a number of steps recently to encourage foreign investment. These include opening up of multi-brand retail and removing bottlenecks hampering investment in various sectors such as aviation and infrastructure.

Another significant initiative in this respect may emerge from recommendations on FDI made by a panel headed by economic affairs secretary Arvind Mayaram.

Finance minister P. Chidambaram said higher FDI limits based on the recommendations—which cover key sectors such as defence, telecom, insurance and retail—are likely to be in place by the third week of July, once ministers have approved them.

The government’s attempts to improve investor sentiment amid global economic gloom may be effective.

“There is a lot of money waiting to come to India. Most of the big investors have made allocations for India but were waiting for announcement of some reform measures before putting in the money," said Mahendra Swarup, president of Indian Private Equity and Venture Capital Association. “With some of the policy reform measures announced by the government, there is some momentum."

He doesn’t see polls as having much of an impact on FDI.

“The upcoming general elections (scheduled to be held in 2014) are unlikely to make much of a difference given that change in governments does not see a drastic change in policies. Also, most of the foreign investors have a long-term outlook for India," he added.

The report also highlighted a shift in the investment patterns of long-term investors, with developing economies led by Asia attracting the bulk of these and exceeding flows to developed economies for the first time by $142 billion in 2012. Developing economies cornered 52% of the global FDI flows in 2012 as against 44.5% in 2011.

The report also raised concerns about the increasing use of offshore financial centres and special purpose entities as a tax evasion measure. It advocated coordinated international efforts and clear definitions of what can be considered benign use of such arrangements.

Last year also saw the most additions to investor-state dispute settlement cases. Fifty-eight new cases were added in 2012 taking the total known disputes to 514, prompting many countries to debate the advantages and disadvantages of the system.

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Published: 26 Jun 2013, 11:47 PM IST
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