Releasing the report, commerce special secretary NN Khanna said that the Indian government was following a FDI-friendly policy and is confident that FDI growth will be maintained in the current year as well. He refused to offer any estimates saying that the fiscal is only half-way through and it is therefore difficult to put any figures.

Interestingly, among the developing countries China received the highest FDI in 1997 amounting to $ 45.3 billion up from $ 40.8 billion in 1996. In absolute terms, FDI inflows to developing countries totalled $ 149 billion which is twice the level of 1993 and 10 times that of 1985.

According to the report, Reliance Industries is the only Indian company which figures in the list of top 50 transnational companies in 1996. Itranks 39th on the basis of foreign assets and 49th on the basis of the Transnationality Index.

Elaborating on the report Khanna said that FDI flows during 1997 were largely drawn by cross-border M&As. The volume of cross-border M&As by mid-October 1998 are 20 per cent higher than 1997.

In the forecast for 1998 he said: * FDI flows in the developing countries are likely to decline in 1998 for the first time since 1985 * Asia is unlikely to do well, it accounted for 58 per cent of FDI inflows in 1997. In 1997 FDI inflows into China are likely to decline to around $ 40 billion compared to $ 45 billion in 1997.

Worldwide FDI inflows continued their upward climb in 1997 for the seventh consecutive year. During the year FDI increased by 19 per cent to a record level of $ 400 billion, with outflows reaching $ 424 billion. World FDI stock increased by over 10 per cent in 1997 to reach an estimated $ 3.5 trillion. This is held by about 53,000 TNCs with atleast 4,48,000 foreign affiliates in the world. Assetsowned by foreign affiliates are atleast 3.5 times the size of FDI stock.

In 1997, total cross border M&As transactions worldwide amounted to $ 342 billion. These transactions accounted for 58 per of FDI inflows in 1997 against 49 per cent the previous year. Developed countries accounted for about 80 per cent of all cross border sales and about 90 per cent cross border majority purchases, the report says.

While the increase in cross border M&As can be linked to the process of privatisation and liberalisation, the major factor is the process of restructuring among the TNCs as a result of increased international competition. There has been an increasing trend in M&A sales in South, East and South East Asia particularly after the onset of the financial crisis, the report adds.

A major development according to the report has been the decline in official capital flows to developing countries in recant years. In the beginning of the 1990s, official finance accounted for more than a half of the flows todeveloping countries. By 1997 this had come down to 15 per cent, while the volume of overall flows grew by around 16 per cent annually in nominal terms during 1990-97.

A significant development in the context of international policy frameworks is the proliferation in recent years of Bilateral Investment Treaties (BITS). Out of the over 1500 treaties in existence at the end of 1997, about 75 per cent date from the 1990s.

INSIGHT

FDI changes course: Though foreign direct investment worldwide is slated to rise by 10 per cent to $ 440 billion in 1998 -- the eighth consecutive year of increase -- its flow to the developing countries is projected to decline. This may not adversely affect India which attracts little FDI any way, amounting to $ 3.26 billion in 1997 against $ 2.38 billion in the previous year.

Even though a decline in FDI to China has been forecast, the middle kingdom is estimated to attract $ 40 billion in 1998 against $ 45 billion in the previous year. Intra-first worldinvestment accounts for the bulk of FDI, including mergers and acquisition.