India has emerged as the second most attractive location after China, but ahead of the United States and Russia, for global foreign direct investment in 2007, the World Investment Report of the UNCTAD has said.
"China is the most preferred investment location, followed by India, the US and then the Russian Federation and Brazil," the report said. India's ranking in inward FDI performance index has also improved to 113 in 2006 from 121 in 2005.
Significantly, India and China are emerging as major players in terms of FDI outflows as well. They are "beginning to challenge the dominance of the Asian newly industrialising economies -- Hong Kong (China), the Republic of Korea, Singapore and Taiwan... as the main sources of FDI in developing Asia," it said. In terms of location choice for foreign investors, China polled 52 per cent of the respondents in the UNCTAD survey followed by India with 41 per cent.
The US received support of 36 per cent and Russia 22 per cent, followed by Brazil with 12 per cent. Rapid economic growth in South, East and South-East Asia is likely to continue, underpinned by the strong performance of China and India.
In addition, the region may become more attractive to "efficiency-seeking" FDI, owing to the plans of several countries such as India and China, Indonesia and Vietnam to develop their infrastructure.
India was the fourth largest recipient of FDI during 2005-06 with China and Hong Kong (China) remaining on top. Singapore was ahead of India at the third position. "India registered a substantial increase in FDI amounting to 17 billion dollars," the report said.
The report said that thanks to India, FDI inflows to South Asia surged by 126 per cent amounting to 22 billion in 2006.
"The country received more FDI than ever before (153 per cent more than in 2005), equivalent to the total inflows to the country during the period 2003-05," it said, adding that the rapid economic growth has led to improved investor confidence in the country.
It said the sustained growth in income has made the country increasingly attractive to market-seeking FDI. "Indeed, foreign retailers such as Wal-Mart have started to enter the Indian market. At the same time, a number of United States transnational companies such as General Motors and IBM are rapidly expanding their presence in the country as are several large Japanese TNCs such as Toyota and Nissan," the report said.
It noted that firms from India and China are also reaching out to the world with outward FDI. India's outflows were almost four times higher than those of 2005. Compared to China, where FDI outflows are driven by the international expansion of State-owned enterprises, booming outflows from India have been dominated by privately-owned conglomerates, such as the Tata Group.
"The emergence of China and India as important sources of FDI, coupled with active merger and activities by investors based in the Asian NIEs, particularly Singapore, has led to increased FDI flows from Asia to developed countries," the report said.
It said Asian investors have become a driving force in the M & A boom in Europe, in particular in 2006. During the first half of 2007, the value of cross-border M&As increased by nearly 20 per cent over the corresponding period in 2006. Global FDI inflows soared in 2006 to reach 1,306 billion dollars showing a growth of 38 per cent.