The news that the Indian government has boosted its projections for foreign direct investment (FDI) in 2007 to $15 billion has attracted a lot of comparison with China.
While the coverage has been accurate and complimentary of India’s positive position, it’s important to highlight some of the differences between the FDI of India and China.
While China’s FDI may have been $63 billion last year (almost four times that of India), we need to look a bit more closely at how the two countries measure FDI.
To begin with, China not only includes imported equipment in its FDI calculations (unlike India, which includes this in separate trade data), but it also factors in domestic money flow from Macau, Hong Kong and Taiwan – the so-called ‘roundtripping’ of funds. This roundtripping has, by some, been shown to represent 40%-60% of the country’s total FDI.
If one is looking at the overall direct inflow of capital, it will be worth looking at direct investments made by private investors and remittances – transferred money by Indian expatriates and emigrants back into the country – that makes up a significant part of the funding of small-scale industry.
The India corridor for international remittances is the largest in the world at $21.7 billion in 2005, according to the World Bank Global Economic Prospects Report 2006. Estimated at $23 billion in 2006, it is also expected to grow to $26 billion in 2007.
Again, this won’t be covered by the official FDI figures.
And while the reporting of Indian FDI could be skewed, there is also the growth to factor in. Five year ago, India was responsible for 1/10 of the FDI of China. Today, it represents almost a quarter.
One other way to measure the success of an economy is to cast your eye over the world’s rich list – India now leads Asia with the highest number of dollar billionaires, having recently overtaken Japan.
With the creation of Special Economic Zones in India to attract more long-term investment coupled with high-profile visits by global leaders such as His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai cementing the future of inbound investment to India, comparisons between the two ‘Asian tigers’ are set to continue.
It’s critical to remember that there is often a greater truth than what’s selectively culled by the media from statistical reports.
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