India seen as the hot spot for FDI inflows

Foreign direct investment in India is set to swell in coming years as investors stomach a lack of transparency, poor infrastructure and policy paralysis in their search for growth, professional services firm Ernst & Young (E&Y) said in a report.

Overseas investment in Asia’s third-largest economy rose for the first time in three years in 2011, it noted, as global investors put their faith in rising salaries, an expanding middle-class and a large and cheap labour force.

“The fundamentals that make India attractive to investors remain intact,” Ernst & Young India Head (Markets) Farokh T Balsara, wrote in the report released on Sunday.
“However, our respondents continue to cite inadequate infrastructure and a lack of governance and transparency as major obstacles to investment.”

Foreign direct investment (FDI) in India rose 13 per cent to $50.81 billion in the first 11 months of 2011 from a year earlier, while the total number of projects rose 25 per cent to 864, the report said, citing data from Financial Times FDI Intelligence service.

The majority of companies surveyed by E&Y were confident in the long-term prospects for investment in India, given sluggish growth in the United States and debt problems in Europe. Almost 70 per cent of 382 international companies surveyed said they plan to increase or maintain their operations in India, said the report, which was prepared for World Economic Forum gathering in Davos, Switzerland. Just 19 per cent said they had no plans to enter the country or were preparing to withdraw.

Robust domestic demand, cost competitiveness and a cheap, ever-growing labour force were cited India’s key benefits. “Although the ongoing global uncertainty...(has) prompted some discomfort among global investors to make long-term commitments, India’s inherent advantages and its proven resilience to counter macroeconomic challenges far outweigh these concerns,” Balsara said.