Despite the Vodafone tax issue, a survey of transnational corporations finds India is regarded as the third-best destination for foreign direct investment (FDI), after China and America, till 2014.
The findings of the survey of around 170 companies, part of the World Investment Report of the UN Conference on Trade and Development (Unctad), was released on Thursday at a time when India is facing a dearth of dollar flows, leading to depreciation of the rupee.
The World Investment Prospects Survey conducted with executives of transnational corporations, however, predicted slower FDI growth at the global level in 2012.
Speaking to reporters on India’s ranking, Nagesh Kumar, chief economist, UN-ESCAP, when asked about negative sentiment due to the Vodafone tax case and retrospective taxation, said, “I do not think that the single case (Vodafone) will affect the overall investment climate.”
Industry lobby groups have been raising a red flag after then finance minister Pranab Mukherjee introduced retrospective taxation in the Union budget for 2012-13, after Vodafone won its tax case in the Supreme Court.
United Nations secretary general Ban Ki-moon, in his preface to the report, observed, “Despite record cash holdings, transnational corporations (TNCs) have yet to convert available cash into new and sustained FDI, and are unlikely to do so while instability remains in international financial markets."
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Even so, half the global total will flow to developing and transitional economies, underlining the important development role that FDI can play, including in Least Developed Countries (LDCs). Among developing economies, India remained the largest investor in LDCs, contributing $4.2 billion in 39 projects, followed by China ($2.8 bn in 20 projects) and South Africa ($2.3 bn in 27 projects), according to the report.
On FDI growth in South Asia, the report acknowledges India’s attractiveness that has led to a turnaround in FDI inflows into the region. “In South Asia, FDI inflows have turned around after a slide in 2009–2010, reaching $39 bn, mainly as a result of rising inflows in India, which accounted for more than four-fifths of the region’s FDI,” the report said.
India recorded FDI inflows (including re-invested earnings) of $46.8 bn in 2011-12, up 34 per cent from $34.8 bn in 2010-11. On the other hand, China recorded an FDI inflow growth of just eight per cent, the report said.
Outward FDI from India increased from $13.2 bn in 2010 to $14.8 bn in 2011. However, Indian TNCs became less active in acquiring assets abroad.
The report also noted: “Recent developments such as the improving relationship between India and Pakistan have highlighted new opportunities.”