Channel: Investment

Tuesday, 3 November 2010
US FDI in India
An insight into how does the US ranks in India's FDI league tables.
Tables & Graphs

India & US are supposed to be natural trade and investment partners and so the perception is that US must be heavily investing in India. But figures and trends reveal something different.


A look at the table below shows that US remains a distant 3rd largest investor in India after Mauritius and Singapore. While the dominancy of Mauritius can easily be demystified, the size of US investment is lags far behind the expectation. More significantly, the share of US in total investment in India has witnessed a sharp fall and currently rests at 7.5% against a level of 24% witnessed in 2004.So the verdict seems to be clear that while India has moved ahead in terms of its FDI inflow, US has failed to match the pace.US Investment in India remain as low as $ 2 bn for year 2009.


US remains 3rd largest investor in India in cumulative investment figures with a share of 7%. but the performance in last 2 years is far from satisfaction. When India has an appetite to attract big investments, these decreasing numbers imply that US has not been able to tap the Opportunity of high return in the region. It also implies that Indian FDI regulations need to be much more flexible to attract more US investments into the country. Though India has allowed 100% FDI for many sectors but still the ease of doing business in India is not very adorable. Global survey shows India on 133rd rank (year 2010) in ease of doing business, one rank below the previous year.


Another revelation from the table is that while FDI remains low, FII from US has formed the sizeable chunk of total FII inflow to India. It points to India’s inability to attract long term investment. Portfolio investment is never a substitute for FDI, yet more and more FII inflow to India vindicates its efficient financial markets.


One of the reasons why the US FDI in India has remained low is lack of investment in Manufacturing and Capital intensive sectors. This can be attributed to India’s incompetence vis-à-vis China and Infrastructure issues and strict labour laws. Moreover, ASEAN has been the competitor for US FDI in the region with attracting 10 times more investment than India. Infact even for current year in first 5 months, India has been able to attract only $ 636 mn of US FDI despite the fact that India has been adjudged 2nd most preferred FDI destination for transnational corporations during 2010-2012.


The lower level of US investment in India clearly underlines the scope of massive growth opportunities. The infrastructure development programme being undertaken by India presents huge opportunities for foreign investment and there is no reason why US companies should not take up this.


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