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India eyed by global investors but concerns remain

India ranks seventh out of 15 top investment locations for global companies with bureaucracy and the slow pace of economic reform deterring bigger inflows, a report by consultants A T Kearney said on Monday.

The report, based on feedback from executives of about 1,000 global companies, said India's market size, labour skills and low wages were main attractions for investors.

"With a population of over one billion and growing, India offers investors a domestic market that is virtually unmatched in the world," the report said.

India was ranked the seventh favoured destination after the United States, China, Brazil, Britain, Mexico and Germany according to the report. Italy, Spain, France, Poland, Canada, Singapore, Thailand and Australia were behind India.

Most investors perceived China as the main competitor for foreign direct investment inflows to India.

China, one of the world's fastest growing economies, attracted $40 billion of FDI last year -- almost 80 per cent of all FDI into Asia and some 15 times India's $2.6 billion inflow.

Most investors felt positive about India with over 40 per cent saying there was likelihood they would invest there in the next one to three years.

The majority of respondents felt India offered a better rate of return on their investments than any other region including Africa, South East Asia and Mercosur.

The higher rate of return was mainly in consumer products firm followed by industrial products and telecom and high technology firms, the report said.

According to the report, the low levels of investment inflows reflected a failure on the part of the government to transform investors' expectations into actual inflows.

Between 1991 and 1998, India converted less than one-fourth of all approved projects into actual FDI flows.

BARRIERS STILL EXIST

However, concerns still remain as bureaucracy, red tape and a slowing of reforms are seen as the biggest deterrent for potential investors.

"Investors want reliable, predictable and consistent direction of reforms in India," said Paul Laudicina, Vice President of A T Kearney's Global Business Policy Council, which compiled the report.

Due to bureaucratic delays in approving new projects, drastic changes in government policies and regulations and disappointing returns, foreign direct investment in India has withered in recent years even as FDI flows boomed globally.

Last year global FDI flows rose an estimated 23 per cent to $1.1 trillion, according to the Economist Intelligence Unit. But India, home to one-sixth of mankind, received a microscopic 0.24 per cent of the total.

Most investors felt the regulatory environment was a barrier in the Indian context.

"Although India boasts a judicial system based on the Anglo-Saxon tradition, respondents found it more often to be an obstacle rather than a driver for investments," the report said.

Poor infrastructure, involvement of the government in the economy and poverty were among the other deterrents for investors.

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