FDI in India reaches a milestone - Views on News from Equitymaster

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FDI in India reaches a milestone

Oct 6, 2009

As emerging markets continue to vie for long term investor interest, India has yet another milestone to be proud of. The FDI inflows into the country from the year 2000 upto July 2009 has crossed the US$ 100 bn mark. The positive that can be drawn from the same is that global investors perceive India as a safe destination for making investments especially given that the developed economies are fraught with risks and mired in recession. While FIIs over the years have been instrumental in bolstering the Indian stockmarkets, what India needed were FDIs so that the same could be utilised towards investment in areas such as infrastructure, education and healthcare. FDIs are also important in the sense that they bring in new technological and managerial knowhow. The UNCTAD in its report titled World Investment Report had highlighted the fact that FDI inflows to developing nations, though declining over the past few years, have proved to be more resilient to FII inflows and bank lending. This is because FDIs are more long term in nature. While as a percentage of GDP, FDI in India still lags China, Russia and Brazil, the positive is that in absolute terms FDI in the country has been rising. Therefore, the government needs to now make sure that the same are being effectively utilised for long term benefits.

The road to higher growth
What kind of investment in roads will India require if it wants to achieve either high growth, medium growth or lower growth? An outlay of Rs 874 bn by 2012 if India wants to grow at a fast pace and Rs 301 bn if its aims at a slower growth according to the World Bank.

While the importance of developing roads cannot be undermined especially as far as India's growth is concerned, there are still many hurdles along the way. The first is the delay in projects faced by the civil contractors both in awarding and executing the contracts, not to mention the red-tapism. The second problem particularly with respect to BOT (build-own-transfer) projects is the existence of parallel roads in India. Thus, commuters choose to alleviate the toll payment by opting for cheaper but more uncomfortable and longer routes. What also needs to be noted that automobile companies will continue to launch newer models into the market. So, if road development does not take place at a faster pace, how will these new cars be accommodated? Indeed, the government seriously needs to pull up its socks not just in road development but the overall infrastructure development, if it is serious about putting India in the high growth trajectory.

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