Table 2: Percentage share of US investment in India on monthly basis
Table 3: Top 10 Investing nations in India (USD MILLIONS)
Despite India moving closer to US than ever before, US FDI in India is still lagging far behind its other counterparts. The more ominous sign is the negative growth witnessed in 2010.In first 11 months of calendar year 2010, the US Investment in India has fallen by 35%.
A look at the table clearly reveals that US investment in 2010 (first 11 months) in India has fallen to touch the level of $1285 million against $1977 million during the comparable period in 2009. Unfortunately this fall is in complete sync with the fall in total value of FDI in India in the corresponding period. The important aspect here is that areas where India would have expected to receive bounty of US investments have failed to trigger. This dismal show is a matter of concern. The monthly analysis shows that the maximum US investment in 2010 has been $329 million in a month against $640 million in Jun 2009. The data clearly implies the need for quick action to arrest the fall.
The fall in investment is not the only cause of concern for India. The bigger concern is falling share of US in overall investment in India. The investment in India is slipping below its previous level and US share in that below par performance is decreasing as well. The table reveals that while US share in total FDI in India in 2009(first 11 months) was 8%,the share this year has fallen to less than 7%.So the cause of concern for India is very legitimate.
The matter is urgent as US FDI is significant not only in terms of its quantum but also as a symbol of trust for global investors. US have been a traditional investor in India and so falling numbers do not convey a promising outlook to investors from other countries. The decline in US investment in India is largely due to two reasons. The first one being the availability of better investment destinations and other the feeling of discomfort by US companies in India. In both the cases the situation is definitely not conducive for India. More so with growing cases of corruption and legal entangles, the investment climate in India is not going to improve drastically in the near future. The ecological concerns have further dampened the US investment into India.
Some of the areas which are ideally expected to get a lot of FDI in India from US firms include defence, nuclear energy, multi-brand retail and financial services. Unfortunately the US firms have not found the existing Indian laws that friendly. The US continued emphasis on these sectors conveys the realstory. So while Indian Investment in US is growing with the Indian companies aspiring to increase their global footprint, the US investment in India is falling.
Though India-US defence deals have increased in the recent years, India has not been able to convert them into the investment. India is expected to spend $112 billion on defence equipment by 2016.US companies are also in the fray to bag these deals. Unfortunately many of these deals involve technology transfer requiring some regulation changes but mutual consensus faces the hurdle.
Nuclear energy is an area where India can expect a lot of investment but the problem is the discontent among US firms on India's civil nuclear liability bill. Since the deal contains the provisions incompatible to those followed in international nuclear standards, the breakthrough is unlikely to come without a clear assurance from Indian side.
The demand for opening of Indian retail sectors have come from many countries.With the disorganized mom-and-pop stores accounting for over 90 percent of domestic trade, the issue is sensitive from political angle and hence there have been no forward movement yet. The retail sector is largely closed to foreign firms, with 51 percent foreign direct investment allowed only in single-brand retail. Multi-brand retail is restricted to cash-and-carry or wholesale outlets, restricting the entry of retailers such as U.S. giant Wal-Mart.
FDI in India's banking sector is currently limited at 49 percent in private banks, and 20 percent in public lenders. However, current rules restrict foreign investors to only 10 percent of voting rights, regardless of investment level.US and other foreign firms are unlikely to increase their investment unless the cap on voting power is lifted.
Insurance industry reform, to allow foreign investors to take a bigger stake in Indian firms, has been on the table for years and without the further reform the increase in US investment in India looks highly improbable.
So the figures clearly indicate that despite an impressive strategic relationship with US, India is struggling to match its peers in attracting the US investment into the country.The need of hour is to have concerted effort from Indian government to allay the concern of US investors and to ease the restrictions on key sectors for investment.