India is one of the most beautiful nations in the world to foreign investors. Only the domestic market of India constitutes three hundred million consumers and suggests uncomplicated access to the whole region of south-east Asia. Despite the fact that India lags behind China in drawing Foreign Direct Investments, the latest World Bank report demonstrated that India has a better place for FDI, addressed several bureaucratic obstacles and tackled the issue of under-investment in the country’s infrastructure.
Indian government supports the inflow of foreign investments in the country and designs policies, which simplify export, import, location decisions, entry and the choice of technology, production.
According to Indian laws, no income tax is placed on incomes derived from exports. India’s abundant agricultural and mineral resources serve as an additional attractive issue for the foreign investors. India also is proud of possessing a well-instituted manufacturing sector, which covers just about all areas of activity. A significant pull of trained workforce and qualified management power is evident. The levels of salaries and wages are as well competitive.
According to the information from FDI Magazine, The number of projects, which was carried out in India for the period from January to September 2004 was equal to 986, which constituted 92.2% of the region’s market share. The value of the projects relative to GDP was 16.5%. The top three attractive investment sectors for that period appeared to be IT & software, business services, and consumer electronics. Three top source countries were United States, United Kingdom, and Germany, while three senior investors were LG, General Electric, and Intel.
(http://www.fdimagazine.com/news/printpage.php/aid/1025/India.html) Presently, India significantly underestimates the figures of the foreign direct investments with the help of using a contracted and limiting definition of FDI. The top management of the Reserve Bank of India and the Department of Industrial Policy and Promotion (DIPP) suggested the representation of data according to the international definition of FDI, which was initially suggested by the International Monetary Fund (IMF). In the case, when India accepts this proposition, FDI stock and annual inflow estimates of the country will appear several times greater. Introductory predictions show that as an alternative to the inflow of about $2,320,000,000 in 200 the country could have drawn as much as $8,000,000. If we compare this to China, not including “round-tripping capital,” money given to China and brought back by Hong Kong, would be equal to about $20,000,000. Estimations of RBI demonstrate that this type of “round-tripping” capital will not be significant in case of India.
Current research carried out by the International Finance Corporation had demonstrated that if India and China exploit analogous definitions of FDA, then about 1,7% of India’s Gross Domestic Product would be constituted of Foreign Direct Investments. For the comparison, China’s GDP would consist of FDI of 2%. As China has been able to draw more investment from abroad, than India, the actual difference is not demonstrated by the proportion of 1:10, as proposed by 2001 FDI estimated of $40,000,000,000 for China and $4,000,000,000 for India. In reality, the figures to compare are close to $20,000,000,000 for China and $8,000,000,000 for India.
According to the words of the Department of Industrial Policy and Promotion official, the most challenging issue is going to be determining “reinvested earnings,” because India has had foreign businesses for a significant amount of years and a lot of them were reinvesting profoundly over the years. Determining this would increase the stock of FDI to a great extent. Nevertheless, even the stream in latest years would enlarge, because a few multinational companies have been reinvesting their incomes in India and that was not classified under Foreign Direct Investments. A similar statement can be applied to China’s policies toward the related issues.
As one can observe from the survey, FDI plays a significant role in the development and growth of India’s economy. The attachments to this paper demonstrate the recent growth of FDI to India. As it is seen from the research, FDI in India is likely to increase further.