Thursday, March 17, 2011

Byzantine Asia

Business Standard: FDI Plunges 48% in Jan; Apr-Jan Dip by 25%
Indian Express: Foreign Investors to Get More Options
AFP: FDI in India nearly halves in January
Economic Times: India Should Liberalize FDI Regime for Insurance, Retail: US

Slow recovery from the financial in the world’s rich nations, especially in Europe, has decreased foreign direct investment (FDI) in the rest of the world. Foreign direct investment is a long term participation by one country, usually a corporation of that country, in another country in the form of technology sharing, joint venture, or management. The UK, Singapore, Mauritius, Netherlands, Japan, Germany, and UAE are the major investors in India. Although the recovery for some of the investor nations is underway, they are still lagging behind the rest of the world. This caused from FDI in India to decline 25% to $17 billion in the ten month period of April 2010 to January 2011 from the same period a year ago.

However, the decline in FDI is not solely the result of the economic cycle. A slew of corruption scandals, an increasingly sclerotic bureaucracy, the specter of inflation, and a perception of government indifference or resistance to opening the economy have led to a fall in FDI. India’s left leaning Congress that was elected two years ago has not shown an inclination towards liberalizing investment policies. Companies have frequently complained that byzantine regulations and standards make operating a business in India unduly challenging.
India’s structural deficiencies, juxtaposed with its neighbor’s increased FDI, have led India’s central bank to conclude a “quantum leap” is needed in India’s investment policy. The U.N. statistics show that FDI in Singapore increased 120% compared to 2010 to $37 billion, it increased in China by 6.3% to $100 billion, and inflows to Malaysia increased by 410% to $7 billion. The United States also called for liberalization of India’s FDI scheme, especially in the insurance and multi-brand retail sectors, where American influence is greatest. On a global scale, foreign nations invest most in India’s financial services, telecommunications, real estate, construction, and energy. Instead of investing in India, foreign corporations are now investing in India’s neighbors.

Although mild reform is underway, India is still in desperate need of FDI. India needs to fund a $1 trillion plan over the next five years to overhaul its ports, airports, highways and other infrastructure. Infrastructure is a key element of economic growth because it allows businesses to operate efficiently and safely. Although India’ economy is projected to grow at 9% of GDP this year, lack of foreign investment is a bar to India’s continued rise.

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