India's potential to draw FDI low, says Unctad

Ranked 114 in the inward foreign direct investment performance index for 2001-03, India not only has a low potential of attracting foreign direct investment (FDI) but also is an under-performer in this respect, according to Unctad's World Investment Report 2004 released yesterday.

India has been clubbed with the likes of Indonesia, Argentina, Bangladesh, Pakistan and a host of African countries as an "under performer" on the basis of performance and potential. China, Bahamas, Belgium and Luxembourg, the United Kingdom and Canada have been termed as the front-runners, while the US, Australia, Japan, South Africa and South Korea are classified below potential.

In the listing based on performance, Belgium and Luxembourg is at the top of the list, with China placed 37th, Pakistan at 97, the US at 112, which is two notches higher than India.

In the potential rankings, India does not figure in the top 25 list with the US leading the charts followed by Norway and the UK.

The report, however, has termed India as having a promising future as a large outward investor, recording $ 1 billion of annual outflows during 2001-03. The latest outward FDI performance index for 2001-03 shows that India has climbed up two ranks to 63 from 61 during 2000-02.

India was, however, placed among the top four Asian FDI destinations and said it would get more foreign investment flows as global economy rebounds this year.

The foreign direct investment performance index is the ratio of a country's share in global FDI outflow or inflow to its share in global Gross Domestic Product.

An inward index greater than 1 indicates that the country attracts more FDI in proportion to its economic size.

The report points towards a shift, where developed countries suffered a relative decline in positions in the inward performance index, while the 'other developed countries' like Japan and Australia and developing nations improved considerably.

The report has pointed out that apart from greater role of FDI activity, transnational company activity (TNC) has also picked up considerably over the years. Unctad's data shows that international production is carried out by over 900,00 foreign affiliates of at least 61,000 TNCs worldwide.

Defining transnationality index of the host country as an average of four ratios "" FDI inflows to gross fixed capital for 1999-2001, FDI inward stocks to GDP in 2001, value added of foreign affiliates to GDP in 2001 and employment of foreign affiliates to total employment in 2001"" the report has ranked Hong Kong as the most transnational country.

Within the developed country block, North America's inward performance index deteriorated sharply over the years to 0.45 in 2001-03 from 1.13 in 1988-90, due to slowdown in merger and acquisition activity, the report said.

The developing countries, improved their inward performance index from 0.99 to 1.25.

The report says that developed countries like Germany, United States and Japan have low values of outward performance index despite investing huge amounts outside in absolute terms.

This meant these developed countries have a long way to go before they reach the level of outward investment expected of them, the report has said.

It has added that developing nations' FDI outflows have grown faster over the past 15 years than those from developed countries. " Negligible until the beginning of 1990's, outward flows from developing countries was 6 per cent of total world flow in 2003.