BEING THE 10TH largest economy in the world and the 4th largest in terms of purchasing power parity (PPP), India has emerged as a potential destination for NRI investment.  It has a large reservoir of skilled labour which is internationally cost-competitive, a large entrepreneurial base and a diversified manufacturing sector.  These attributes make it easy to find partners for collaborations. 

The country has a 20 million-strong scientific and technical manpower, more than the population of Taiwan.  The number of literates in India is more than the combined population of France and Japan. India has a vast domestic market – a 300 million-strong middle class population with substantial purchasing power and another 700 million-strong population whose capacity to purchase is gradually increasing.  Being a vibrant democracy with a large democratic set-up supplemented by a broad-based legal framework including arbitration and an independent judicial system, it boasts of a vast network of bank branches, financial institutions and well-organized capital and money markets.  These attributes make India a favourable destination for NRI in-vestments.

The country also has a huge network of technical and management institutions of the highest international standard for development of excellent human resources.  India has an enviable record of honouring its international financial obligations and has never defaulted. The country has a strong English language base for business purposes.  The strong and vibrant small-scale sector is good enough for establishing strategic alliances with its foreign counterparts. The strategic location of the country in the context of the third world markets particularly the rapidly growing South and South-East Asian markets together with a supportive infrastructure base help in promoting a healthy environment for NRI inflows into the country.

A recent World Bank Report has predicted that the Indian economy will be-come one of the world’s largest by 2050 A.D. What began as a drizzle in the 1980’s is now coming down in torrents like the Indian monsoons.  A GDP growth rate of 8 percent in 2003 triggered by a rebound in agriculture has been followed by a boom in the manufacturing and service sectors, a la China.  The Economic Survey of 2006-07 says, ”The advance estimates of gross domestic product (GDP) for 2006-07, released by the Central Statistical Organization, places the growth of GDP at factor cost at constant (1999-2000) prices in the current year at 9.2 percent. While the service sector maintained its vigorous growth performance, there were distinct signs of sustained improvements on the industrial front. The overall macroeconomic fundamentals are robust, particularly with tangible progress towards fiscal consolidation and a strong balance of payments position. With an upsurge in investment, the outlook is distinctly upbeat”.

India’s economy is on the bull run of an ever-increasing growth. With positive indicators such as a stable 8-9 percent annual growth, rising foreign ex-change reserves of close to USD 180 billion, a booming capital market with the popular “Sensex” topping the majestic 20000 mark, the Government of India (GoI) has estimated an FDI inflow of USD 12 billion during this fiscal and a 35 percent plus upward growth in exports.  It is easy to understand why India is one of the top destinations for foreign investment. The Indian economy has grown by 8.9 percent during the first quarter of ’06-07, which is the highest first-quarter growth rate since 2000-01. In this period, the manufacturing sector grew by a high 11.3 percent and agriculture, which constitutes nearly a quarter of the GDP, grew by a robust 3.4 percent.  Trade, hotel, transport and communication sectors grew by 9.5 percent and construction grew by 13.2 percent. In the corresponding period of last fiscal, these sectors grew by 11.7 percent and 12.4 percent, respectively. Electricity grew by 5.4 percent in the first quarter as against 7.4 percent in the same period last year. The overall growth in this sector was fuelled by growth in July and August. The service sector also grew by 10.6 percent in the first quarter of ’06-07 as against 9.8 percent last year for the same quarter.  There has been an outstanding growth in some important industries of the Indian economy, like commercial vehicles (36 percent), telephone connections (48.9 percent) and passenger growth in civil aviation (32.2 percent).

Some of the features of the Indian economy in comparison with those of the Chinese economy are as follows:

India has more billionaires than China. This year there are 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine. India has emerged as the world’s fastest growing wealth creator, thanks to a buoyant stock market and higher earnings. A number of Indian companies surpassed last year’s net profit in just six months of the current fiscal, reflecting accelerating corporate earnings. 44% percent of the top 100 of the Fortune 500 companies are present in India. With its manufacturing and service sector on a searing growth path, India’s economy may soon touch the coveted 10 percent figure.

The comparative analysis leads to interesting findings.  India lags behind China in many areas; a lot needs to be done if India has to catch up with China.  India’s population is 1.033 billion, China’s, 1.272 billion. India’s labour force is 0.451 billion-strong; China’s, 0.757 billion-strong. India’s GDP is USD 478 billion, China’s, USD 1159 billion. 27 percent is the share of agriculture in India’s GDP; for China it is only 15 percent.  27 percent is the share of industry in India’s GDP; for China, it is 52 percent. 48 percent of India’s GDP is accounted for by services; for China it is only 33 percent.  The route-length of the railways in India is 62.5 thousand sq kms; for China it is only 56.7 thousand sq kms.  Motor vehicles per 1000 population in India is 7, while for China, it is 8. R& D expenditure in India is 0.6 % of GNP; for China, it is 0.1 %. 0.8 out of every 10000 population boasts of internet connection in India; for China, the proportion is 0.6 out of 10000. Expenditure on education in India is 3.2 percent of GNP; in China, it is 2.3 percent of GDP. Undernourished people in India account for 23 percent of the population; in China only 9 percent of the population is undernourished.

The Indian diaspora’s business has turned hot of late. Government has al-ways wooed non-resident Indians assiduously to attract more inflows.  Apart from the money transfer business, which compared to money invested in India is smaller; the Centre is trying its best to persuade NRIs to pump money into the country like never before. And, it has seen superlative success in re-cent years. The Prime Minister of India has announced dual citizenship for people of Indian origin.  It has given a big boost to the NRI community across the world. With recruitment levels for overseas jobs skyrocketing, there is scope for more money coming into India. According to a recent Business Standard report, in the last three years, 850,000 people went to West Asia alone. And even as the official figure for Indians living in the US is put at 2 million, unofficial estimates put it at 3.5 million. And emigration to Canada and Australia continues to grow. 

The ministries concerned have made sure that rules and regulations are simplified to make inflows easier. Where does the government see money being invested? Investment in bank deposits and company deposits may be made by NRIs.  They are subject to different rules; investments with and without repatriation facilities are permitted under the schemes. As of now, NRIs are permitted to make direct investment in partnership and proprietorship firms in the country. This, the NRIs can do by way of subscription for shares or debentures of Indian companies. Further, they can also now place funds in company deposits. NRIs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non-repatriation basis. NRIs also have the option of investing in mutual funds floated by domestic public sector and private sector mutual funds on non-repatriation basis. All they have to do is to make their applications to the Reserve Bank. They can  also now invest in money market mutual funds (MMMFs) floated by commercial banks and financial institutions with authorization from the apex bank or the Securities and Exchange Board of India (Sebi), the market regulator. Yet another option is to invest in the securities of the Central or State governments and the National Plan/Savings Certificates by making remittances from abroad or out of funds held in their NRE/FCNR accounts. In effect, with regulations tapering off, compared with the scene some 7-8 years ago, non-resident Indians today have more choices to invest their hard-earned money in India. And, to make things easier and hassle-free, the government is doing all it can to persuade Indians who make big money away from home to park their funds here.  Commendable though is the fact that the Indian diaspora has also begun to believe that it is better to channel their money home, thereby contributing to the development process of the nation they actually belong to. The old saying, ‘home is where the heart is’ seems to have finally driven the message home indeed.

However in comparison to the investments made by overseas Chinese in China the investment made by NRI’s in India is peanuts – a lot more needs to be invested by NRIs. Two-thirds of China’s FDI comes from overseas Chinese investors, notably in ’Greater China’ and South East Asia. For example, investment in China by the Shenzhen Overseas Chinese Chambers Of Commerce alone amounted to USD 20 billion for the year 2006 which in itself is a huge sum. If Hong Kong and Taiwan are included, about 80 percent of all foreign investment – some USD 200 billion totally, which has poured into China since 1980, has come from overseas Chinese. China overtook the U.S. as the biggest recipient of foreign direct investment (FDI), receiving USD 53 billion in 2003, according to the Organization for Economic Co-operation and Development (OECD). In 1990, for example, Hong Kong, Macao and Taiwan accounted for about two-thirds of China’s inward FDI. Although overseas Chinese investment has declined in recent years it still accounts for 40-45 percent of inward FDI. China’s foreign exchange reserves have recently registered a record high – exceeding USD 1.4 trillion of which almost two-thirds came from the Chinese diaspora. A report by Shen Danyang, Vice-Director of the Research Institute of the Ministry of Commerce says that over 67% of FDI in China comes from overseas Chinese.

In comparison investments by overseas Indians in India is still very low. According to M. A. Yusuf Ali, managing director of EMKE group, which runs a popular chain of retail stores under the brand name Lulu, remittances to India from Gulf Indians, is close to Rs. 20,000 crores annually. “Of the $ 23 billion in foreign remittances from overseas Indians last fiscal year, nearly half came from just five million NRIs in the Gulf” says  Overseas Indian Affairs Minister Vayalar Ravi. At the last Pravasi Bharatiya Divas Conference in January 2007 the Prime Minister of India Dr Manmohan Singh said, “We in India wish to see you engaged in India’s great adventure of building an India free from the fear of war, want and exploitation…I invite you to be active participants in this saga of great adventure and enterprise.” But mere talks and lectures would not bring dividends; what is required is real and concrete action on the ground to attract more NRI investments. As the commerce minister rightly points out in terms of FDI and NRI investments, “There is competition not only just from China but also from others like Thailand, Malaysia and so on. We can’t lose focus on attracting investments since we can’t get inflows by giving lectures but work on ways to get investors.” It’s heartening to see NRI investments flowing into India; after all it is ‘better late then never’.  But then a lot more needs to be done if India has to catch up with China in terms of diaspora investments.

-Meri News

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