India 'second favourite for foreign investment'

By Jo Johnson in New Delhi and Peter Marsh in London
Date: Dec 09, 2005

India is now the most attractive country in the world for foreign direct investment after China, according to an annual survey of global investor confidence by management consultants A.T. Kearney. While China has held the top spot since 2002, an increase in interest in India is a more recent development that coincides with a renewed push by reformers in New Delhi to offer a warmer welcome to FDI as a source of capital, technology and knowhow.

"India is on the cusp of an FDI take-off," the report said, while warning that the country needed to overcome narrow business interests and infrastructural, logistical and regulatory barriers to take advantage of surging investor confidence.

The attraction of offshore centres such as India continues to grow, with 80 per cent of business leaders planning to locate corporate functions overseas over the next three years, compared with 66 per cent in 2004 and 50 per cent in 2003, according to the 2005 FDI Confidence Index.

India's rise to second place from third last year came at the expense of the US, which fell to number three. Although the UK held its ground in fourth place, other western countries tumbled. Germany declined from fifth to ninth place, France from sixth to 14th, Italy from ninth to 19th and Spain from 13th to 17th place.
India attracted just $5.3bn (€4.5bn, £3bn) in FDI in 2004, equivalent to 0.8 per cent of global FDI inflows, which rose 2 per cent to $648bn in 2004, the first rise since 2000.

Separately, a US consultancy, World Steel Dynamics, forecast that India could become a large exporter of steel by the turn of the decade, potentially dealing a blow to the profitability of the booming steel business in Asia through the effect of pushing down prices. It said India could export nearly 20m tonnes of the commodity in 2010-11, four times the amount this year, as a result of large planned increases in production in the next five years.

Netherlands-based Mittal Steel and Posco of South Korea, two of the world's biggest steelmakers, are both due to build large steel plants in eastern India, each with a production capacity of 10m-12m tonnes a year. Tata Steel, Essar, Jindal Vijayanagar Steel and Ispat Industries, four private-sector Indian steelmakers, are also planning expansion projects.

The extra steel from India streaming into world markets could potentially push down steel prices, which have stayed high for much of the past three years and have given a fillip to the earnings of virtually all the world's biggest steel producers. The companies that would be hardest hit if this happens are most likely to be based in Japan and South Korea – traditionally strong exporters of steel to other Asia markets.