Can India Absorb the FDI Rush Coming it's way?.

India is now rated as the second-most favoured destination for foreign direct investment (FDI) in the world after China, according to AT Kearney’s latest global FDI Confidence Index, an annual survey of executives of the world’s largest companies.

The potential is clearly massive , given the huge investment backlog across sectors and industries, as the economy picks up and sustains speedy growth. However, the fact remains that India is also ranked 133rd as per the World Bank’s Doing Business 2010 survey, thanks to the flawed political-administrative structures and culture.

India will not be able to absorb the FDI inflows coming its way without reform in the policy framework and the enabling legal environment — with proposals not getting cleared, not taking off after being cleared or being written off. Obdurate non-reform and revenue leakages stymie FDI in a sector like power.

The index shows that India has elbowed ahead of the United States, thanks to financial services investors upgrading the economy from the fourth to the second-most attractive FDI location, the easing of ownership restrictions in telecom and perceptions of attractive investment options both in heavy industry like steel and in light manufacturing like auto ancillaries.

Given the large infrastructure deficit, we do need to be focused on reforms like land acquisition to actualise investment intentions, whether in steel plants or new towns. We need to shore up transparency and rationalise the rules. India is ranked 169 (out of 183 economies) when it comes to procedures involved in starting a business, and placed at a scandalous second-last (rank 182) for enforcing contracts. On heads like getting credit, India is ranked relatively high at 30, as also for investor protection, at 41.

Streamlining of investment procedures here would pay rich dividends and solidly rev up inflows. It is also noteworthy that the FDI index reveals that China and India are the most preferred destinations for future research and development projects over the next three years. It underlines the need to step up the knowledge infrastructure for competitive advantage in the medium term and well beyond.

Source : economictimes.indiatimes.com