FDI: IT pips leather, textiles

Foreign direct investment in the post-liberalisation era seems to have given the "aam admi" a miss. Traditional sectors like textile and leather, which rank next only to agriculture in providing employment to India's millions, have failed to catch the eye of the foreign investor, who has chosen to put his money into information technology, financial services, etc.

The data put together by the department of industrial policy and promotion show that out of the total FDI of $54.62 billion between August 1991 and March 2007, just $60.24 million, or 0.12 per cent, has found its way into leather.

As many as two million families in the country draw their livelihood from this sector. Textiles, which employs close to 85 million people directly or indirectly, got just $575 million (1.22 per cent.)

In comparison, electrical equipment (software and hardware) got FDI of $8.27 billion (15.06 per cent), financial and non-financial services sector bagged $7.84 billion (14.35 per cent) and telecom got $3.89 billion (7.12 per cent.)

Experts reckon that while it takes an investment of $250 in textiles and an investment of $750 in leather to create an additional job, it takes as much as $4,000 for information technology or information technology-enabled services.

However, research carried out by Nasscom, the national association of information technology companies, shows that every job created in the IT/ITeS sector results in four indirect jobs.

Thus, while there are 1.6 million people directly employed in the IT/ITeS sector, more than 6.4 million people are indirectly linked to the sector through jobs created in supporting services like housekeeping, transportation and catering.

"Traditional sectors have cyclical returns. In sectors like IT/ITeS, returns could be much higher," says Rahul Bhasin, managing partner, Baring Private Equity Partners.

"The sectors that receive more FDI are the ones which are technology intensive. Countries like China and Taiwan produce high volumes at low cost in employment-intensive sectors like textiles, a capability which we do not have. In addition, skill, efficiency and modernisation are also issues with sectors which have low FDI inflows," says Amitendu Palit, visiting fellow, Indian Council for Research on International Economic Relations.

Bhasin explains that factor productivity (overall efficiency) in the entire gamut of sectors in the services umbrella is 4 per cent, which is lucrative for foreign investors.

"But in manufacturing, factor productivity in the country is 1 per cent, while in China it is 6 per cent. Hence we see a lot of foreign investments in the Chinese manufacturing sector," he adds.