Published On:February 1 2012
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Investors see India as an attractive investment option: E&Y

Investors see India as an attractive investment option: E&Y Foreign investors see India as an attractive investment option, not withstanding the uncertain global economic climate, according to Ernst & Young`s 2012 Survey.

The overall number of FDI projects increased by 25% to 864 (valued at USD 50,813 million) in the 11 months to November, up from 691 projects (valued at USD 44,874 million) in 2010.

More than three-quarters of companies with international presence who were polled for the survey remain convinced about India's prospects and plan to strengthen their operations in the country.

Two-thirds of the respondents are planning to implement projects in India in the near to short term. The survey combines an analysis of foreign direct investment into India, along with a survey of more than 500 global executives on their views about the potential of the Indian market.

The latest survey also highlights that India's relative attractiveness compared to both developed and emerging economies has improved throughout 2010. While 55% of the survey respondents found China to be India'smain competitor in terms of FDI attractiveness, this is down from the 60% response in the 2011 India Attractiveness Survey. Similarly, 8% saw the US to be India's main competitor in the latest survey, which has reduced from 17% in the previous year.

Almost a third of the respondents believed that India would have achieved double-digit growth rates by the end of this decade.

According to the survey, while India has been one of the leading destinations for shared services, the country is rapidly emerging as a manufacturing location for many foreign corporations. By 2020, 25% of our survey respondents see India among the world’s leading three destinations for manufacturing.

The recent FDI data mirrors the emergence of manufacturing for FDI. In 2011, 78% of investment in terms of value went to the manufacturing sector in comparison to 14% for shared services. This is despite the fact that in terms of number of projects, 54% of FDI projects were related to services and 34% were manufacturing-led.

Underscoring the potential in the domestic market, 35% of the companies surveyed nominated India as an attractive destination for domestic manufacturing and 21% as an attractive base for manufacturing for the global market. When investing in manufacturing projects in India, investors tend to target the industrial machinery, equipment and tools (115 projects) and the automotive (76 projects) sectors.

According to the survey, investors believe that in order to enhance its attractiveness, India needs to focus on improving its current state of infrastructure and governance. More than 75 % of the respondents surveyed mentioned that improving infrastructure is critical to enhancing attractiveness, while 60% emphasized the need for better governance and transparency.

The United States remains the leading investor in India, both in terms of projects and jobs generated. There was a 30% increase in the number of FDI projects compared with 2010 and rise of 31% of investment projects (1,282), with more than 316,900 jobs created between 2007 and November 2011.

Japan and the UK, the second and third largest investors respectively, also saw an increase in FDI projects by 45% and 22% compared to last year, reflecting the slight improvement in the global economy since 2008 and 2009. The only investor country to have experienced a decline in the number of projects was the United Arab Emirates with a 27% drop. Yet it still remains among the top ten investors in India.

South Korea and China are the primary rapid-growth Asian economies that invest in India. These countries have recently lined up several big-ticket investments, particularly in the metals and mining space. Chinese investors have invested in 62 projects, creating more than 36,200 jobs since 2007, primarily in the manufacturing and technology sectors.

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