Recent Trends in FDI Flows and Prospects for India

Raghbendra Jha

ABSTRACT Conventional wisdom has it that foreign direct investment (FDI) flows to India have not been commensurate with her economic potential and performance. India has only very recently emerged as a destination for FDI since the pre-reform years were marked with a sharp antipathy toward foreign capital unless under certain conditions. With FDI becoming a significant component of investment only recently, accounting practices in India lagged behind international norms. Recently several problems of comparability have been noted. Towards rectifying some of these, the Government of India revised (starting November 2002) its computation of FDI figures in line with the best international practices and pursuant to the recommendations of a committee set up to examine this issue. This has led to a substantial improvement in FDI figures; however these are still well below Chinas. This paper, however, identifies the quality of FDI (as manifest in technological spillovers, export performance etc.) as more important than its quantity. Recent work has argued that high Chinese FDI might well be concealing difficulties. The paper argues that raising investment is more important than just raising the FDI component of such investment. It identifies measures to raise such FDI and improve its effectiveness. Keywords: Foreign direct investment, investment policy JEL Classification Code: F23, O16, R42

All correspondence to: Prof. Raghbendra Jha, Executive Director Australia South Asia Research Centre, Australian National University, Canberra, ACT 0200, Australia Phones: + 61 2 6125 2683 + 61 2 6125 4482 Fax: + 61 2 6125 0443 Email: r.jha@anu.edu.au
This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at: http://ssrn.com/abstract=431927

I.

Introduction

Conventional wisdom has it that foreign direct investment (FDI) flows to India have not been commensurate with her economic potential and performance.1 Invariably comparisons with China are made.2,3 In Table 1 below we report FDI figures from the 2002 World Investment Report.4 Table 1: Foreign Direct Investment overview (Select years), Millions of dollars and percentages
FDI Flows (Millions of dollars) 1985-95 1997 1998 (annual average) 1999 2000 (as percentage of gross fixed capital formation) 2001 1985-95 1997 1998 1999 (annual average) 0.6 4.0 0.1 14.6 0.8 7.4 -0.3 2.9 0.1 12.9 0.8 5.7 0.1 2.2 0.1 11.3 0.5 6.7 10.5 0.2 3.9 0.1 2000

India Inward 455 3619 2633 Outward 23 113 47 China Inward 11690 44237 43751 Outward 1591 2563 2634 Pakistan Inward 264 713 507 Outward 15 -25 5 South, East and South east Asia Inward 29841 96338 86252 Outward 16492 49671 30278 Developing countries Inward 50912 191022 187611 Outward 21512 74797 50256 World Inward 181101 478082 694457 Outward 202481 474010 684039 FDI Stocks (Millions of dollars) 1980 India Inward Outward China Inward Outward Pakistan Inward Outward 1177 235 6251 1985 1075 250 10499 131 1079 127 1990 1668 281 24762 2489 1928 250

2168 80 40319 1775 530 1 40772 916 305 11 46846 1775 385 31

6.4 1.0 3.3 0.3

99990 36023 225140 73636 1088263 1042051

131123 79657 237894 104207 1491934 1379493

94365 30593 204841 36571

5.3 2.9 4.4 2.0

10.0 5.4 11.1 4.0 7.4 7.4

10.5 3.9 11.4 3.1 11.0 11.0

11.5 4.4 13.4 3.5 16.5 15.9

14.0 9.0 13.4 5.8 22.0 20.6

735146 3.9 620713 4.5 (as percentage of GDP) 2001 22319 2068 395192 25579 6608 542 1980 0.6 0.1 3.1

1995 5652 495 137435 15802 5552 403

2000 18916 1311 348346 25804 6896 521

1985 0.5 0.1 3.4

1990 0.5 0.1 7.0 0.7 4.8 0.6

1995 1.6 0.1 19.6 2.3 9.1 0.7

2000 4.1 0.3 32.2 2.4 11.2 0.8

691 40

2.9 0.2

3.5 0.4

Even in the conservative UNCTAD FDI Inward Index, as of 2000, Indias potential as a FDI destination was 15 ranks ahead of its FDI performance index. 2 For a review of Indias FDI experience see Athreye and Kapur (2001). 3 Appendix Table A1 indicates figures for cross-border mergers and acquisitions from the 2002 World Investment Report. 4 Figures for India for 2000 and 2001 are deliberately not reported since these have been revised substantially. The revised and unrevised figures for these years appear in Table 2 below.

South, East and South east Asia Inward Outward Developing countries Inward Outward World Inward Outward

161170 4746 245819 22058 635534 521486

199000 9519 344463 35469 913182 691745

284090 41259 484954 90404 1871594 1721462

522011 179462 849915 270925 2911725 2854853

1168470 571956 2002173 751632 6258263 6086428

1243405 590213 2181249 776065 6845723 6552011

21.1 1.1 10.2 1.3 6.1 5.4

19.5 1.0 13.9 1.7 7.8 6.2

17.4 2.6 13.0 2.8 8.9 8.4

18.9 6.7 15.3 5.1 10.0 9.9

36.4 18.2 30.9 11.9 20.0 19.6

As is evident from these figures India has only very recently emerged as a destination for FDI since the pre-reform years were marked with a sharp antipathy toward foreign capital unless under certain conditions. (See Athreye and Kapur (2001)). Appendix Tables A2 and A3 reveal that investment and double taxation treaties with many countries have only recently been put in place.5 With FDI becoming a significant component of investment only recently, accounting practices in India lagged behind international norms. Recently several problems of comparability have been noted. Towards rectifying some of these, the Government of India revised (starting November 2002) its computation of FDI figures in line with the best international practices and pursuant to the recommendations of a committee set up to examine this issue. Both inflow and outflow figures were revised to better reflect equity capital (including equity capital of unincorporated entities, control premium and non-competition fees), reinvested earnings (consisting of earnings of incorporated and unincorporated entities and reinvested earnings held directly by investment enterprises) as well as other capital (consisting of short-term and long-term inter-corporate borrowings, trade credit, suppliers credit, financial leasing, financial derivatives, debt securities and land and buildings). The

Indias double taxation treaty with Australia dates to 1991.

adjustments have been noted in official publications as well as in Srivastava (2003). The broad aggregates of such adjustments are noted in Table 2. Table 2: Corrected FDI Figures for India FDI Inflows 2000-01 2.34 4.03 72.2 2001-02 3.90 6.13 57.2 2002-03 2.57 4.67 81.7

Unrevised figure (US$ billion) Revised figure (US$ billion) Adjustment (as per cent of unrevised figure) Unrevised figure (US$ million) Revised figure (US$ million) Adjustment (as per cent of unrevised figure)

FDI Outflows 2000-01 514 757 47.2

2001-02 639 1390 117.5

2002-03 459 1049 128.5

While both inflows and outflows have been revised significantly, the percentage adjustment in outflows seems to have been higher. These adjustments have been greeted with considerable enthusiasm. This is only right since the measurement of FDI must satisfy the best international norms. However, even with the revised figures, Indian FDI figures fall well short of the Chinese magnitudes. How much of a worry should this be for Indian policymakers? We approach this question in section III of this paper. Section II discusses the distribution of FDI in India. Section IV concludes.

II. The distribution of FDI Reliable data on actual FDI inflows into different sectors is not available. On the basis of approvals data it appears that much of the FDI is directed towards infrastructure and energy sectors. More approvals were made in the nonmanufacturing sector as compared to the manufacturing sector. Metallurgy, power and fuel sectors recorded the most growth with falls in transport, industrial machinery and food processing. The services sector (including telecommunications) increased its share during 1992-94 but this growth slackened off due to shortfall in demand. During the past two years this growth has again picked up. Since several key subjects (such as education, health, roads (except national highways), electricity, property rights etc.) lie within the jurisdiction of individual states, the progress of administrative reforms at the level of state governments is an important determinant of state level economic performance in several years including State domestic product growth, investment, infrastructure and attractiveness as FDI destinations. Over the period 1991-2000 FDI approvals varied considerably over the geographical span of India. Four states (Karnataka, Maharashtra, Tamilnadu and Gujarat) accounted for over one-third of total FDI approvals. The shares of these individual states were, respectively, 7.6%, 13.7%, 6.7% and 5.3%. The shares of other major states were considerably lower: West Bengal (3.7%), Andhra Pradesh (4.2%), Madhya Pradesh (4.5%) and Orissa (3.8 %). The shares of Kerala, Haryana, Punjab and Rajasthan were comparatively smaller whereas the flow of FDI into populous states such as Bihar and Uttar Pradesh has been virtually negligible. The quantum of investment approvals increased for all investing countries during 1991 to 2002. The USA is the largest investor in India with investment of over Rs. 570 billion (as of May 2002). Mauritius (largely because of its tax haven status is

next) followed by U.K., Japan, South Korea, Germany, Netherlands, Australia, France and Malaysia (in that order). Amongst the countries that have increased their share in investment approvals are Mauritius and U.K. Approval shares of USA, Japan, Germany, Italy, and the Netherlands declined during 1991-2002. III. Improving the quality of FDI The low figures of FDI into India as compared to China and some South-East Asian economies, despite substantial upward revision (as noted in Table 1) following methodological adjustment, has been the source of some concern among policy circles. As one would examine considerable attention has been paid to the question of measures to enhance FDI flows into India. A recent government report (GOI (2002)) addresses reasons for inadequate performance of India in the area of FDI. The identification of causes draws extensively on investor perception surveys carried out by major global consultancy firms Boston Consultancy Group and AT Kearney.6 Six major constraints are mentioned: 1. Image and Attitude. There is a perception among investors that foreign businesses are still treated with suspicion and distrust in India. 2. Domestic Policy. While the FDI policy is quite straightforward and getting increasingly liberalized for most sector, once an investor establishes his presence, national treatment means that this investor is subject to domestic regulations, which are perceived as being excessive.

In their report on Indian economic performance McKinsey had mentioned the following (in decreasing order of importance) as impediments to higher economic growth: i) regulations concerning product markets, (ii) distortions in land markets, (iii) government ownership of business; and (iv) others including infrastructure and labour laws.

3. Procedures. Although approval for investment is given quite readily, actual setting up requires a long series of further approvals from central, state and local authorities. This introduces substantial implementation lags. 4. Quality of infrastructure. Foreign investors are concerned about a number of problems with the infrastructure sector in particular, electricity and transport. Irregular and undependable supply complicates problems for foreign investors. 5. State_government_level_obstacles. This issue is tied up with one of the most pressing agenda items for reform. At the level of actual investment the practices of state (and often lower levels) governments become important. There is widespread agreement among most observers that state government practices in issues such as land records, utility (power, water etc.) connections, providing clearances of various sorts may make an important difference in the time it takes to get a plant up and running. Differences in state practices in such matters partly explain the disproportionate flow of FDI to some states in the peninsular region of India. In addition, there are some fiscal barriers to unimpeded flow of goods and services within the country, although the level of such barriers has come down in recent times. 6. Delays in legal process. Despite a highly structured legal system, dispute settlement and contract enforcement are time consuming activities in India. Such apprehensions deter the rapid flow of foreign investment. Some observers believe this should be a matter of great concern and there are several studies on how the quantum of FDI flows in India can be enhanced. FICCIs FDI Survey 2003 is a recent summary of such measures. Indias competitiveness in the FDI sector needs to be sharpened. China and the Asean nations have become adept in attracting FDI. Besides its liberalising policies, and a large diaspora, China's

attractiveness has been enhanced by its entry into the WTO and South-East Asian nations build upon the ASEAN Free Trade Area (AFTA agreement), which came into effect in January 2002, and offers attractive tariffs. India has considerable potential in both these areas. Recently cross border merger and acquisition (M&As) have emerged as the main route for and the service sector the major recipient of FDI. Much of the global FDI flows went to the US and Europe, also via the M&A route. FDI also helped recoveries, notably in South Korea and the Latin American countries. In 1999 South Korea recorded a 72 per cent increase in FDI thanks mainly to M&A activity, following relaxed control on foreign capital. The flows were mainly into telecommunications, finance and insurance and commerce. Together, these sectors accounted for over 43 per cent of the global FDI flows in recent times. Again these are areas in which the Indian economy has shown considerable potential of late. However, India continues to repose faith in `greenfield' investment while framing policies for second-generation reforms in FDI. With the global competition becoming fierce with the rapid development of IT and R&D, and the speed required to strengthen market competition, greenfield investment has been losing to M&As because the former require longer time to set up facilities for commercialisation and generate profits. India needs to accomplish much more to facilitate M&As.7 8

Recent impetus to Indias efforts to liberalise the FDI regime include the announcement on 25 June 2003 lifting restriction on duration of royalty payments by Indian joint ventures to their overseas partners under the foreign technology collaboration agreement policy. Until this announcement joint venture companies were allowed to pay royalty to their foreign technology partner only for seven years from the date of commencement of commercial production or ten years from the date of agreement, whichever was earlier. However, wholly-owned subsidiaries of foreign firms were permitted royalty payment up to 8 per cent on exports and 5 per cent on domestic sales to their offshore parent companies on the automatic route without any terminal date specified. With a view to further liberalising the policy and extending a uniform policy dispensation, the Government has decided that all companies, irrespective of the extent of foreign equity in the shareholding, will now be permitted on the automatic approval route to make royalty payments at 8 per cent on exports and 5 per cent on domestic sales

Upon entry into the WTO China opened up the services sector to FDI. India should take a cue from it. There is a rich harvest to be reaped here as services account for over 50% of GDP. There is abundant scope for foreign investment in domestic trading, which is currently banned to the foreign investors. The retailing industry in India is underdeveloped, fragmented and inefficient but is worth more than US$180billion. It has been estimated that there are 12 million kirana shops in the country with 96% of them occupying less than 500 sq. ft. of space. The wholesale system is under-invested and involves considerable wastage. In China the retail sector employs 7% of the labour force and has been a major source for real estate and urban development. (In the U.S. the figure is 16%). Jardines argues that policy neglect, complex regulatory structures and a ban on FDI are important factors responsible for the poor performance of the retail sector in India. There needs to be a policy rethink on this matter. In August 2002 the Steering Group on FDI of the Indian Planning Commission noted that: FDI in food retailing would lead to more efficient supply chain management systems that can reduce the large gap between the price received by farmers and that paid by consumers. It would thus benefit both farmers and consumers besides
without any restriction on the duration of the payments. The ceiling on payment of lump sum fee/royalty on the automatic route, however, continues to apply in all cases.
8

A report in the Economic Times (5-8-2003) reveals that established FDI might be benefited by a change in government policy. Foreign investors may not have to be bound by what they had originally committed to the authorities, if the worrisome FDI norms were subsequently done away with. The immediate trigger for governments decision to review the policy was a proposal of $5.4 billion German clinical nutrition and fluid therapy major Fresenius AG to make its Pune-based Indian subsidiary Fresenius Kabi a wholly owned arm. In 1998, Fresenius AG was told that it would have to divest 26% of the equity in favour of local investors. The MNC has now sought a waiver of this condition, given the fact that 100% FDI is now allowed in the pharmaceuticals sector, whereas when the MNC made its original proposal, the FDI permissible in the sector was 51%. In 1998 Fresenius AG had bought the equity held by Arvind Mafatlal Group.

creating profitable avenues for FDI. But in the short term, traders and intermediaries in direct competition with new entrants would suffer a loss of income. Over time the productivity gains would generate much more income and employment opportunities, even for these intermediaries, by stimulating agricultural growth and consumer demand. However, the report goes on to say, the retail sector in India is dispersed, widespread, labour intensive and disorganised. In the light of this it is not thought desirable at present to lift the ban on FDI in retail trade In contrast China permitted FDI in retail in 1992. There were some checks such as FDI being restricted to 6 major cities and foreign ownership restricted to 49% of joint ventures. Even these restrictions on FDI in retailing are scheduled to go within five years of joining the WTO. By 2002 US$22 billion of FDI (3.6% of the total) had been attracted. Apart from the retail and other sectors and, more generally, with the removal of QRs and the gradual reduction in tariff, the domestic distribution industry requires substantial investments, which the domestic private sector alone cannot bring in. FDI can become an important supplement. These and other steps should help enhance the flow of FDI into India. However, one should be wary of equating higher FDI inflows with better economic performance. The quality9 of FDI is equally, if not more, important than its quantity. In a country such as India with historically high tariffs and large domestic market, FDI might move in merely to produce behind tariff walls for the domestic market. Such FDI becomes virtually indistinguishable from domestic investment and has, in the Indian context, sometimes lobbied for higher protection along with domestic firms. FDI becomes attractive for its own sake when it makes a net contribution to

For an analysis of FDI quality effects see Elo (2003).

10

exports and/or has productivity spillover effects. Policy should target FDI with potential for such effects rather than any FDI, per se. A powerful tool to achieve this is to make deep cuts in tariffs so that opportunities for production behind tariff walls recede. As Tables 3 and 4 indicate there is substantial room for tariff cuts in India. Adapting the proposals of the Kelkar Committee would go some distance in meeting these concerns. Another pitfall in FDI policy is to let such investment substitute for a genuine domestic privatization program. Hence, at the level of policy a successful FDI policy must be integrated with a policy of trade reform and genuine privatization.10 Table 3: Tariff Barriers Across Select Emerging Market Economies (per cent) Manufactured Products Country Year Simple Std. Weighted Simple Weighted Simple Weighted Mean Deviation mean Mean mean Mean mean tariff of tariff tariffs tariff tariffs tariff tariffs rates China 1992 41.0 30.6 32.2 35.4 13.9 42.3 36.5 2000 16.3 10.7 14.7 16.5 18.8 16.2 13.7 Indonesia 1989 21.9 19.7 13.0 19.9 5.8 22.3 15.6 2000 8.4 10.8 5.2 6.3 2.8 8.9 6.7 Malaysia 1988 17.0 15.1 9.4 15.2 4.6 17.4 10.5 1997 9.3 33.3 6.0 7.0 10.0 10.3 5.4 Philippines 1989 28.0 14.2 22.4 29.6 18.5 27.7 23.6 2000 7.6 7.9 3.8 11.9 7.5 6.9 3.3 Thailand 1989 38.5 19.6 33.0 30.6 24.2 39.6 35.7 2000 16.6 14.1 10.1 21.9 9.5 15.7 10.2 India 1990 79.0 43.6 49.6 69.1 25.4 80.2 69.9 1999 32.5 12.3 28.5 30.9 23.2 32.8 32.7 N.B. (i) Simple mean tariff: unweighted average of the effectively applied rates for all products subject to tariff. (ii) Standard deviation of tariff rates: Average dispersion of tariff rates around the simple mean (iii) Weighted mean tariff rate: Average of effectively applied rates weighted by the product import shares Source: Reserve Bank of India: Report on Currency and Finance, 2001-02 All Products Primary Products

10

Initial Pubic Offerings (IPOs) appear to be a fruitful step in this direction as the recent experience with Marutis IPOs indicates.

11

Table 4: Weighted Average Import Duty Rates in India (per cent) Year Agriculture Mining Consumer Intermediate Capital goods goods goods 97.8 69.5 94.8 All commodities 72.5

199147.0 56.9 92 199222.8 32.6 83.2 62.6 85.2 60.6 93 199319.8 33.4 68.7 47.6 58.4 46.8 94 199416.8 30.3 55.9 38.4 45.5 38.2 95 199516.7 29.9 36.1 22.9 29.1 25.9 96 199614.7 22.0 39.0 21.9 28.8 24.6 97 199714.0 21.9 33.8 46.1 25.1 25.4 98 199824.2 19.9 37.9 31.1 29.4 29.2 99 199924.4 21.4 37.4 33.1 31.0 31.4 00 200058.6 16.1 56.2 36.2 34.4 35.7 01 200157.7 15.8 67.1 34.8 31.8 35.1 02 Source: Reserve Bank of India: Report on Currency and Finance, 2001-02

It should be noted however, that comparative advantage and the beneficial effects of FDI are dynamic concepts. An interesting illustration is the development of the automobile and automobile ancillary industry in India (Aiyar (2003)). He notes that foreign companies entered India because of its large urban middle class. But, as in the case of China, they discovered that local competition was fierce and profits were low. Earlier in China they had found that domestic component manufacturers had remarkable potential, which could be harnessed to lower costs through new design and know-how. Foreign investors started exporting, reaped scale economies that further lowered costs, and became profitable.

12

Foreign companies repeated this experiment in India and are now making India a global supply base as well as an R&D base. For instance, Ford is exporting over half its production and Suzuki is using India as a base for exporting Alto. Hyundai is making India a global export base. Daimler-Chrysler is exporting cars, and accounted for eight per cent of all auto component exports in 2001-02. Timken, one of the worlds biggest producer of automotive ball bearings, is going to double its capacity in India. With such good tidings, the Auto Components Manufacturing Association of India plans to step up its export target for 2010 from $2.5 billion to $10 billion. Indeed FDI helped convert Hindustan Motors from an import-substituting dinosaur into a supplier of world-class engines to Ford and General Motors. Indian cars are now competitively priced, and the Maruti 800 is probably the cheapest car in the world. Hyundai and Tata Indica carsare now being exported to Europe. According to WTO figures one-third of all international trade is trade between branches of MNCs. MNCs could create exports in unexpected areas: watch-manufacturer Titan is now exporting car clocks. In the Chinese case doubts about the effects of their large FDI have begun to emerge. In a recent book Harvard Universitys Yasheng Huang (2003)11 argues that Chinas lagging internal reforms contributed to the fantastic growth of FDI. He argues that although the absolute size of FDI into China is large, the ratio of FDI to domestic investment was rising, particularly prior to 1997. As happened in the American boom of the 1990s domestic firms should be equally induced to invest, if the size of the market is overwhelmingly important. As a consequence, the ratio of FDI to domestic investment should remain broadly constant. Huang notes that in

11

See also Huang and Khanna (2003).

13

China although property rights for foreign companies were enshrined in 1982, Chinese entrepreneurs were given such rights only in 1999. This single factor along with weak domestic institutions constitutes a good explanation for the rising ratio of FDI to domestic investment prior to 1997. Aggressive internal reforms since 1997 made domestic investment more attractive and the ratio of FDI to domestic investment started to drop. In the Indian case FDI as a percentage of domestic investment has remained relatively stable in recent times and has not shown the large fluctuation that has been associated with FDI into China. (See Table 2). Furthermore, Huang argues that although the macroeconomic performance of the Chinese economy has been sound, the high value of FDI to domestic investment reveals poor efficiency of domestic firms, relative to foreign firms. This is probably because domestic resources and market opportunities have largely been reserved for state owned enterprises. These enterprises have traditionally been characterized by the inefficiencies associated with government-run organizations. Private domestic entrepreneurs still feel unsure about their property rights. In contrast, Huang points out, although Indias macroeconomic performance (particularly economic growth) has been less robust than Chinas, microeconomic reforms have led to better efficiency of investment allocation resulting in the emergence of some Indian firms that are competitive in a truly global sense. Hence, there is nothing automatic about the link between economic performance and FDI inflows and higher inflows could well be concealing problems. In sum, although much needs to be done to enhance FDI flows into India, it is more important to ensure that quality FDI comes in. This necessitates, at the very least, much faster tariff reforms and privatization than is taking place at present. With these and improved governance and regulatory structures in place, quality FDI will

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flow into India. The quantum of FDI itself should not, by itself, of overwhelming concern. It is more important to have a high rate of saving and investment (an area in which India consistently lags behind China), than to have a large FDI component of investment, per se. IV. Conclusions When discussing Foreign Direct Investment it is important to keep in mind that we are talking of investment. Hence, unless FDI has a net contribution of its own there is no reason why it should be distinguished from the general level of investment in the economy. In many ways Indias principal problem remains that of boosting its rate of saving and investment from the current about 23% of GDP to over 30% of GDP in order to make growth prospects take a quantum jump (real GDP growth rate of 8% or higher as envisaged in the 10th Five year Plan) and become comparable with the high growth phases of the Chinese and East Asian economies. FDI becomes important in its own right if it makes contributions towards technology progress; productivity spillovers and consolidating niche export markets. This latter variety of FDI needs a certain type of domestic policy support in order to flourish. Some of these measures have been discussed in this paper. This paper emphasizes the view that an enlightened FDI policy is to be seen as part of a general policy of enhancing investment in this economy under conditions of sustained production efficiency.

15

References Aiyar, S. (2003) The Unintended Consequences of FDI The Times of India, 28th. June. Athreye, S. and S. Kapur (2001) Private Foreign Investment in India: Pain or Panacea? The World Economy, vol. 34, no.3, pp. 399-424. Elo, K. (2003) Quality of Foreign Direct Investments under Country Risk with Incomplete markets mimeo, University of Melbourne. Government of India (2002) Report of the Steering Committee on Foreign Direct Investment Planning Commission, August. Huang, Y. (2003) Selling China: Foreign Direct Investment During Reform Era, New York: Cambridge University Press. Huang, Y. and T. Khanna (2003) Path to Prosperity Foreign Policy, issue 137, Carnegie Endowment for International Peace. Srivastava, S. (2003) What is the True Level of FDI Flows to India Economic and Political Weekly, 15 February.

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Appendix Table A1: Cross-border merger and acquisition overview (millions of dollars) 1995 1996 1997 1998 1999 2000 2001 India Sales Purchases China Sales Purchases Pakistan Sales Purchases South, east and SE Asia Sales Purchases Developing Countries Sales Purchases World Sales Purchases 186593 186593 227023 227023 304848 304848 531648 531648 766044 766044 1143816 593960 1143816 593960 16493 13372 35727 29646 66999 35210 82668 21717 74003 63406 70610 48496 85813 55719 1124 80 2259 6 6 6 107 4 403 249 1906 451 1856 799 798 1276 2395 101 2247 470 2325 452 276 29 206 80 1520 1287 361 11 1044 126 1219 910 1037 2195

6278 6608

9745 17547

18586 17893

15842 6001

28431 11335

21105 21139

33114 24844

Source: World Investment Report 2002

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Table A2 India: Bilateral Investment Treaties concluded during 1995-2001 Partner Argentina Australia Austria Belgium and Luxembourg Bulgaria Croatia Czech Republic Denmark Egypt France Germany Indonesia Israel Italy Kazakhstan Korea Kuwait Kyrgyzstan Laos Malaysia Mauritius 1999 1999 1999 1997 1998 2001 1996 1995 1997 1997 1995 1999 1996 1995 1996 1996 2001 1997 2000 1995 1998 Year

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Mongolia Morocco Netherlands Oman Philippines Poland Qatar Romania Spain Sri Lanka Sweden Switzerland Tajikistan Thailand Turkey Turkmenistan Ukraine Uzbekistan Vietnam Zimbabwe Source: World Investment Report 2002

2001 1999 1995 1997 2000 1996 1999 1997 1997 1997 2000 1997 1995 2000 1998 1995 2001 1999 1997 1999

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Table A3: India: Double Taxation Treaties concluded during 1995-2001 Partner Belarus Canada Czech Republic Finland Germany Ireland Israel Jordan Morocco New Zealand Oman Portugal Qatar Sweden Trinidad and Tobago Turkey Turkmenistan Source: World Investment Report 2002 Year 1997 1996 1998 1997 1995 2000 1996 1999 1998 1999 1997 1998 1999 1997 1999 1995 1997

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