India third largest recipient of FDI in 2011, says PMO

India is the third most desirable destination for foreign direct investment (FDI), the Prime Minister’s Office (PMO) said on Monday, quoting a report from the UNCTAD World Investment Report 2012.

“The two large emerging economies, China and India, saw inflows rise by nearly 8 per cent and by 31 per cent, respectively,” the PMO said on its Twitter feed, quoting the July 5 report.

The United Nations Conference on Trade and Development is an inter-governmental body that seeks to maximize trade, investment and development in developing nations. 

The PMO said FDI inflows to South Asia have turned around as a result of higher inflows to India, which is the dominant recipient of such funds in the region.

“In South Asia, FDI inflows have turned around after a slide in 2009–2010, reaching $39 billion, mainly as a result of rising inflows in India, which accounted for more than four fifths of the region’s FDI,” the UNCTAD report said. FDI outflows from India rose by 12 per cent to $15 billion in 2011, it added.

The report also found that some developing countries with emerging market status and with growing investment potential, including India, are currently receiving FDI flows below expectations. 

“To realize the investment flows that their economic determinants alone indicate, these countries may wish to explore policy options and innovations in comparable economies,” the report said.

On Sunday, United States President Barack Obama called on India to push on with "difficult reforms", saying that many in the American business community – “one of the great champions of the US-India partnership” – have expressed concerns that the investment climate in India is deteriorating.

“They tell us it is still too hard to invest in India. In too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow,”  President Obama said.

The UNCTAD report, however, shows that FDI inflows by multionational companies was third-highest in India, only behind China and the US.  It also found that India remains the third highest prospective host economy for FDI by multionational companies from 2012-2014, only behind China and the US, and the second choice behind China among developing and transition economies.  

Global investors have been fretting about the lack of economic reforms that would allow greater FDI inflows into India, which boasts of a growing middle class and offers a rich market to global companies

Foreign direct investment in key sectors such as retail, insurance, aviation and pensions have been stalled, largely due to political opposition, particularly in retail. Most Indian political parties fear that allowing FDI in retail will turn small traders and businessmen, who are currently the backbone of India's retail market and constitute a sizeable vote bank, will turn against them in the national elections that are due two years from now.

Last year, the coalition United Progressive Alliance government approved 49 per cent FDI in retail but had to quickly dial back the development after political parties, including allies, protested. The government subsequently said it would re-introduce the measure after broad-based consultations with political parties and other stakeholders.

(With inputs from PTI)