India may this year surpass China in attracting foreign direct investment, in terms of percentage of its GDP, as the gap in inflows between the two has been narrowing on the back of ongoing reforms in the country, says a Nomura report.
According to the Japanese financial services firm, the trend of rising inflows to India and moderating inflows to China began in 2013 and FDI inflows to India can surpass those into China this year.
“We believe FDI inflows to India (as a percentage of GDP) can surpass those into China in 2016, as India already has large investment commitments from MNCs in sectors like electronics, solar energy, auto, defence and railways,” Nomura said in a research report.
FDI inflows to India are picking up. They rose from 1.7 per cent of GDP in 2014 to 2.1 per cent in 2015, narrowing the gap with China (2.3 per cent of GDP in 2015).
These trends of rising inflows to India and moderating inflows to China are likely driven by a mix of pull and push factors, such as divergent growth outlooks, ongoing FDI liberalisation/economic reforms in India and rising labour costs in China, Nomura said.
Rising FDI inflows not only provide a stable source of financing the current account deficit, they also bring in technical know-how, which can boost India’s productivity growth in coming years, the report said.
“They can also be viewed as early evidence that reforms in India are bearing fruit,” Nomura added.
Foreign Direct Investment into India touched the “highest ever” mark of $51 billion during April-February period of last fiscal ended March 31, according to DIPP Secretary Ramesh Abhishek.
In fiscal year 2011-12, India had attracted FDI worth $46.55 billion. In financial year 2014-15, it was $44.29 billion. This FDI includes equity, re-invested earnings and other capital.