CHAPTER-18

A COMPARATIVE ANALYSIS OF INDIA’s   AND CHINA’s 
FDI  FLOW

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A Comparative Analysis of
India’s and China’s FDI Flow has been summarized in the following article. The
rise in the industrial sectors of India and China are regarded as one of the
biggest factors which led to the huge amount of FDI inflows in both the countries.
Recent studies on FDI in China have come up with interesting perspectives.
Normally, the huge flows of FDI into China are projected as positive indicators
for the Chinese economy; some credit rating agencies have even suggested that
FDI is a reflection of that country’s creditworthiness. A paper by Yasheng
Huang, a don at MIT’s Sloan School, proposes an amazing thesis — FDI into China
is an indication of economic weakness.

Comparative
Analysis of India’s and China’s FDI Flow at a Glance

China stands on a higher
plane than India in terms of economy. India’s per capita income is USD 440 and
China’s per capita income is USD 990. The population residing below the poverty
line in China is 3 percent whereas in India, the population below poverty line
is 30 to 40 percent. China offered investment opportunities to the foreign
players much before India did and thereby attracted a raging FDI Inflows in the
country. China received USD 52.7 billion of FDI inflows in the year 2002 while,
India received USD 4.67 billion of FDI inflows in the same year.

India
Lagging Behind China in FDI Inflows

According to a new World
Bank report, India lags behind China in terms of attracting FDI Inflows in the
country, in spite of having high-tech industries and adept workforce. The main
cause behind this drawback is that India is not skilled enough to adopt the
technological advancements at a fast pace. FDI Inflows only contributes to 0.8
percent of India’s GDP as compared to 3.5 percent of the same in China. India’s
high-tech industries claim for 2.3 percent of Gross Domestic Product whereas
the high-tech industries in China contributes to around 7.9 percent in the GDP
of the country. India did not opened much of economic activities to the foreign
players as compared to other developing nations except liberalizing trade and
foreign investments. 

Advantages
of India and China in terms of FDI Inflows

The majority of the foreign
investors prefer China over India for investment opportunities as China has a
bigger market size than India, offers easy accessibility to export market,
government incentives, developed infrastructure, cost-effectiveness, and
macro-economic climate. India on the other hand has skilled and efficient
manpower, talented management system, rule of law, transparent system of work,
cultural affinity and regulatory environment

 

 

 

CHAPTER-19

 CONCLUSION

 

 

 The increased flow of FDI in a country has
given a major boost to  the  country’s                         economy. FDI has
provided better access to technologies for the local economy.  FDI has lead to indirect productivity gains
through spillovers. Multinational firms have increased the degree of
competition in host-country markets which will force existing inefficient firms
to invest more in physical or human capital. Service sector has been the most
sought after sector   in India for
Foreign Direct Investments. India, with its skilled labor and manpower has the
potential to overtake China as the most preferred destination for Foreign
Investments Hence measures must be taken in order to ensure that the flow of
FDI in our country continues to grow.

 

 

In terms of development, there is a general
agreement of the potential benefits of Foreign Direct Investment. The
relationship between GDP Growth and the increase of the relationship between
FDI and GDP (FDI/GDP (%)) can be clearly established. A country competitiveness
which may attract Foreign Direct Investment from Transnational Corporations is
determined by Comparative Factors, Economic Stability and Strong Institutions,
the later taking in more importance year on year. For these reasons, countries
have to implement active policies that can bring Economic Stability and that
can build an appropriate investment environment for the country.

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