The FINANCIAL — India has a strong foothold in investors’ emerging market strategies, despite the recent slowdown in economic activity, according to Enabling the prospects, EY’s 2014 Indian Attractiveness Survey.
Of the respondents who have an emerging markets strategy, nearly a fifth said that India accounts for more than 20% of their total capital allocated for the developing world.
More than 50%of the respondents plan to enter or expand their existing operations in India over the next year. The survey indicates that of the respondents who are not planning any investment in India, 61.6% do not have any short-term/overseas expansion plans.
India remains one of the top global destinations for FDI on account of its local labor cost, domestic market and availability of educated workforce, according to the survey.
The survey highlights that while India captures investor attention it is increasingly facing competition from new markets. China remains India’s main competitor for FDI as both economies are strongly competing to obtain greater share of world trade and investment. However, new destinations such as Indonesia, the Philippines and Vietnam, are also emerging as competitors. The Philippines is competing with India in the outsourcing industry whereas Indonesia and Vietnam are also gaining significance due to their huge domestic market.
The long-term outlook for India is also positive, with investors expecting the country to be among the world’s top three growth economies and among top three manufacturing destination by 2020, according to EY.
TMT (Technology, Media and Telecoms) was the most attractive sector to investors, from 2007 to 2012, with a 21.6%% share of projects, followed by industrial with 16.6% and business services with 11.4%%. While TMT will remain the leading sector, investors expect industrials, retail, automotive, life sciences and consumer products sectors to become more attractive in the next two years. The industrial sector is also likely to grow in importance in the same time period which is in line with the sentiment from survey respondents indicating that India will be among the three leading destinations for manufacturing by 2020.
The supply of a large, skilled workforce; an emerging supply base; access to natural resources and government initiatives will all play a significant role in driving the momentum of India’s manufacturing sector.
However, between 2007 and 2012, services accounted for 52% of FDI projects, while manufacturing accounted for 31%. In 2012, the service activity’s share increased to 61%, but manufacturing declined to 24%. Issues such as poor infrastructure, land acquisition, regulatory hurdles and the slow pace of reforms have hampered manufacturing projects. Despite low project numbers, manufacturing leads FDI in job creation and total capital inflows.
The US remains the top investor in India. Between 2007 and 2012, the US established 1,505 projects worth US$64.2b. Although investment from the US into India ranges across all sectors, knowledge-intensive industries, such as TMT and business services, receive the most attention. The recent package of reforms initiated by the Indian government has also increased interest in the consumer products and financial services sectors.
Japan and the UK remain the second and third largest investors in India, between 2007 and 2012, with 517 and 505 projects, respectively. Germany, France, Italy and Switzerland are also ramping up their investments in India, according to EY.
Between 2007 and 2012, Southeast Asian countries initiated 150 projects in India worth US$12b, creating 56,423 jobs. Singapore was the largest investor followed by Malaysia and Thailand.
India is now on the list of priority markets for Middle Eastern investors. This is evident from the 123% year-on-year increase in project numbers between 2011 and 2012. The UAE is the leading Middle Eastern investor in India. It initiated 173 projects in the country between 2007 and 2012, worth US$16.6b, according to EY.
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