India may see 25% rise in FDI inflows in 2012

Though global foreign direct investment (FDI) flows are likely to stay flat at $1.6 trillion in 2012, compared with $1.5 trillion last year due to economic uncertainty, UNESCAP India's chief economist Nagesh Kumar is bullish that India can attract 25% higher inflows at about $40-45 billion on the strength of economic fundamentals.

Global FDI inflows rose 16% to $1.5 trillion in 2011, with developing nations attracting a record $684 billion, the United National Conference on Trade and Development said in its World Investment Report for 2012. Major emerging market economies or BRICS accounted for about $281 billion — China attracted $123.99 billion, Brazil $66.66 billion, Russia $52.88 billion, India $31.55 billion and South Africa $5.81 billion.

The UNCTAD forecasts global FDI flows to crawl up to $1.6 trillion in 2012, reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, as half of the companies are either neutral or undecided about the investment climate.

For instance, India's retrospective tax proposals on Vodafone and foreign investors based in Mauritius cast a shadow over capital inflows into the country.

"Countries in the (South Asia) region face different challenges, such as political risks and obstacles to FDI, that need to be tackled in order to build an attractive investment climate. Nevertheless, recent developments such as the improving relationship between India and Pakistan have highlighted new opportunities," the report said.

However, UNESCAP chief economist Nagesh Kumar said FDI inflows in India could rise 25% to $40-45 billion in 2012 from $31.55 in 2011, going by the trends during January-June and after companies like Coca Cola, IKEA and Posco outlined their investment plans. The FDI inflows into India peaked at $43.41 billion in 2008.

India retained its third position in the top investment destination, only behind China and the US. "It's about growth and economic fundamentals. Even if we manage GDP growth of 6.5% in 2012-13, it will still be one of the best globally," Kumar said.

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