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How India Replaced China To Become No 1 FDI Destination?

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How-India-Replaced-China-To-Become-No-1-FDI-Destination-?India has replaced China to become the highest ranked country by capital investment in 2015 with $63bn-worth of FDI projects announced says fDi Intelligence, the Financial Times’ specialist unit dedicated to foreign direct investment.

After a long period of trailing behind China, India is now racing ahead thanks to China’s 23 percent decline in capital investment and 16 percent drop in FDI projects.

The biggest change in greenfield FDI in 2015 was the near tripling of greenfield FDI into India, with an estimated $63 bn. In 2015, India was for the first time the leading country in the world for FDI, overtaking the US (which had $59.6 bn of greenfield FDI) and China ($56.6 bn).

Globally, coal, oil and natural gas is the largest generator of capital investment with $113.5 bn of announced FDI recorded in 2015, followed by renewable energy sector where project numbers increased by 50 percent and capital investment reached $76 bn.

In 2015, greenfield FDI continued to show signs of recovery, with capital investment increasing by nearly 9 percent to $713 bn and increase in job creation by 1 percent to 1.89 million. However, the number of FDI projects declined 7 percent to 11,930.

Top 7 FDI Destinations Globally
Country – Projects – Investment ($bn)
India – 697 – 63
US – 1,517 – 59.6
China – 789 – 56.6
UK – 974 – 53.3
Mexico – 351 – 24.3
Egypt – 49 – 15.5
Brazil – 268 – 17.3
Source: fDi Report 2016

India replaced China as the top destination for FDI by capital investment following a year of high-value project announcements, specifically across the coal, oil and natural gas and renewable energy sectors. India was the highest ranked country thanks to Foxconn and SunEdison investments as they have agreed to invest in projects valued at $5 bn and $4 bn respectively.

The rapid growth of greenfield FDI in India shows that while economic development organisations try to attract FDI for the contribution greenfield FDI can make to employment and GDP, FDI is strongly attracted to high-growth economies. Success breeds success and to attract high volumes of FDI, locations need to create the conditions for strong economic growth and development to take place.

Increased domestic capital investment and job creation through the supply chain and the wealth effect further increases the direct and indirect impact of greenfield FDI.

According to fDi Markets, the motives cited by companies investing in India are domestic market growth potential and proximity to markets as the two main reasons for investing.

“India’s dramatic ascension in the FDI rankings has largely been due to dynamic Modi-led government focusing on ‘big bang’ FDI and labour law reforms. Relative stability within the government coupled with an effort to reduce the stagnating effects of bureaucracy has given foreign investors, across many industries, confidence in India as a remunerative investment opportunity,” says Kavan Bhandary, managing director, Wavteq India.

“Modi’s iconic ‘Make in India’ campaign is structured to attract more FDI to India and make the country a global manufacturing and industrial hub. This campaign has garnered global attention as he has encouraged foreign investors to privatise key sectors such as the railways, defence manufacturing and insurance, as well as the liberalisation of medical devices. Ease of doing business has always been a problem in India, and Modi’s campaign has addressed this by removing archaic laws,” added Bhandary.

The fDi Report 2016 estimates that greenfield capital investment by foreign investors was $700bn in 2015, an 8.6 percent increase over the previous year.

Tags : Brazilcapital investmentChinaEgyptFDIfDi IntelligencefDi MarketsfDi Report 2016FeaturedFinancial Timesforeign direct investmentfoxconnGreenfield smart cityIndiaKavan BhandaryMexicorenewable energySunEdisonTop 7 FDI DestinationsUKUSWavteq India
Pravin Prashant

The author Pravin Prashant

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