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Foreign Direct Investment in India and China - Essay Example

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Foreign direct investment (FDI) is the most talked about subject these days in the international economic parlance and for a long time, a rat race has been continuously going on among the world nations, especially the developing countries, to attract as much FDI as possible…
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Foreign Direct Investment in India and China
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Foreign Direct Investment in India and China

Download file to see previous pages... Statistics reveal that in 2001 alone, China received around US $ 53 billion FDI while India's figures did not cross even US $ 4 billion indicating that it was below 10 % of what China had attracted ( Internet, Ong, China, FDI : China V.S. India / chart). If you go further, China had attracted a phenomenal amount of US $ 60 billions in 2004 while India had received a meagre sum of US $ 5.3 billions in that year (Internet, Venkitaramanan, 2005, Para 9).
Now it is clear that inflow of FDI into China had increased from $ 53 billion in 2001 to $ 60 billion having a growth of $ 7 billion in just 3 years while India had seen an increase of just $1.3 billion during the period. This difference has been continuously growing year after year making China the most sought after destination for the investing MNCs. And India has been really struggling to attract more and more FDI into its soil.
This difference is really vast considering that both countries have opened up their economies and moved ahead with economic reforms becoming the Asian giants. Both of them are high potential consumer markets too because of their huge populations. But, these two countries are still the developing economies and have been desperately looking for huge volumes of FDI for economic growth.
Because of the severe resource crunch at home, developing nations have been increasingly looking at alternate investment resources for boosting up their industrial growth and creating employment opportunities. Globalisation and internet revolution have only strengthened the importance of FDI but truly the investing multinational corporations / enterprises go by several factors in choosing the final destination of their huge investments. Krugell argues that the aim of MNCs in internationalising their production is to generate more profits and earn more money through the full exploitation of local markets and cheap factors of production (Krugell, 2005 P 53).

It is therefore natural for MNCs to invest in countries that would fetch them cheap but efficient labour and highly rated technical expertise among other things. Let us examine and discuss in detail how these and other factors have been playing different roles in attracting FDI and creating the disparity in relation to China and India.

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China has certainly reached an enviable position in relation to attracting FDI. It has become a favourite spot for all MNCs for pumping in their investments. In fact, China had overtaken the US as the top global destination for FDI in 2003 (Internet, Business line, 2004, Para 1). The USA had of course regained its number one position in the very next year, followed by United Kingdom and China (Internet, Venkitaramanan, 2005, Para 3). Standing next only to the US and the UK, China has been consuming major share of the FDI among all the developing nations.

When we compare the Chinese position with that of India, we are bound to conclude that India is not that much favoured by the MNCs. But there is a world of difference on the perception of FDI between these two countries. United Nations Organisation (UNO, 2003, P 88) reveals that India does not treat as FDI reinvested earnings by foreign companies, overseas commercial borrowings, investments between direct investors / associate companies / subsidiaries and investments by offshore and domestic venture capital funds.

On the other hand, China considers a good number of heads as ...Download file to see next pagesRead More
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