India loses sheen as foreign investment destination: Survey

Tepid economic growth, lack of transparency and consistency in foreign direct investment (FDI) policies, infrastructure bottlenecks and regulatory hurdles seems to have taken a toll on India's attractiveness as an investment destination, says Ernst & Young's third India Attractiveness Survey.

The survey highlights that while projects with an FDI component across the globe declined 16.4 per cent in 2012 from the previous year, the decline was much steeper in India at 21 per cent. For instance, only 744 projects with FDI were initiated in 2012 compared to 945 in 2011.

Capital investment also declined from $48.9 billion in 2011 to $30.9 billion in 2012.

The situation worsened in 2013 when India received FDI for 310 projects in the first nine months compared to 579 projects in the same period of the previous year, registering a decline of 46 per cent.

The survey of 500 international investors says even though India still ranks among the top five FDI destinations across the world, its share in world projects, total investment value and job creation declined. In terms of value, India accounted for 5.5 per cent of FDI in 2012. India stands at the fourth position behind the US, China and the UK.

The survey says that between 2007 and 2012, the US invested the most in India with 30.2 per cent of total projects with FDI component. But the country's pool of business partners is constantly growing. There's a whopping 123.3 per cent rise in the number of projects for which FDI has originated from the Middle East in 2012. Southeast Asian countries such as Singapore, Thailand and Malaysia are also expanding their investment in the country.

According to the survey, the TMT, or technology, media and telecoms, sector is the most attractive to investors, followed by industrial business services and automotives. Also, services' share in the total number of FDI projects in the country increased to 61.3 per cent in 2012, while manufacturing decreased to 24.3 per cent.

"India's appeal lies in its competitive labor costs, lucrative domestic market, and its skilled workforce. Foreign investors also applaud its strong management and business education system, as well as its improving telecommunications infrastructure," says the survey.

Bucking the trend, the Asia-Pacific region saw a jump in global FDI share in 2012. Bangladesh, Indonesia and the Philippines recorded growth of 66.7 per cent, 11.3 per cent and 7.6 per cent respectively the in number of FDI projects. "India also scores above China in terms of its democratic government and its significant proportion of English-speaking people. Moreover, minimum wages in China have increased over the years, and its cost advantage has been reduced. Also, foreign investors are now concerned about the insufficient transparency in China," says the survey adding that 70.8 per cent of the respondents found China India's main competitor for FDI.

However, investors are pinning their hopes on the Indian story with the economy is slowly regaining momentum. Increasing foreign investor interest has also been fuelled by recent reforms announced by the government such as raising FDI caps in the retail, airline, telecoms and defence sectors, introduction of the companies and land acquisition acts, and developing an automatic investment route.

On the back of these steps, the survey says more than half (53.2 per cent) of respondents are considering increasing their presence in India.

"Of the respondents who are looking to invest in India, the majority (57.9 per cent) are planning to expand their operations," the survey says.