No analysis has been made of this puzzle; why we get a large portion of theFII cake even though we get a fraction of the FDI that, say, China gets. Forone, our democratic system goes well with FIIs. In emerging markets,political freedom is a rare commodity; in fact most of the much-toutedsuccess stories of Asia are dictatorships masquerading as democracies. Inthe case of China, even that masquerade is not there, as the Economistpointed out in one of its recent articles comparing India and China. We alsohave a decent judicial system. It may be slow but it is open andindependent. So this makes the FIIs feel `at home' in India. We have seenhow independent the judiciary is in Malaysia where the opponent of Mahathiris accused of everything including sodomy with his driver just because hedared to speak up.

There are also two other reasons why we have continued to make a better showin foreign portfolio investments as compared to foreign direct investments.We have within a very short time created a good trading infrastructure forinvestors to operate. Many people do not fully comprehend the level ofsophistication we have reached in our trading systems in recent years. Thisbecomes even more significant if we compared it to the jungle we had on thebourses in the beginning of this decade. By the end of this year, we wouldhave dematerialised more than 95 per cent of the market in the space of justa couple of years. This has taken the drudgery and the risk out of thedelivery process.

We have also strengthened the payment systems and payment crises are a thingof the past. And that too when the volumes have gone up several times. Theseare not small achievements. Let me try to compare this achievement tosomething in the physical world. It would be as if the traffic in Delhi wentup 20 times in two years but the Government managed to build enoughflyovers, roads and bridges to handle the traffic. Not just that; if DDAmanaged to do that and also did such a good job of it that the trafficflowed faster with less accidents, then it would akin to what has happenedon our bourses. No wonder the FIIs feel comfortable operating in it.

I believe there are some not-so-apparent reasons for the success we haveachieved in attracting as compared to the relative failure in attractingFDI. These relate to the manner in which FDI and FPI are marketed. In atypical FDI marketing exercise, the Government would conduct a high-flyseminar under the aegis of a joint business council or a ministry. It willheld overseas or in Udyog Bhavan. On some occasions, it may held in afive-star hotel in Delhi or Mumbai. There will be long speeches and muchchest-thumping. There will be TV cameras in attendance. All of us, includingyours truly will get a holy glow. A few weeks later all this will beforgotten and we will be back to square one. Shakespeare would haveremarked: - if he were around - "A lot of sound and fury signifyingnothing." The process of making the actual investment would still go on inits usual way taking its own sweet time,helped by lawyers, merchant bankers,free-lance consultants, etc.

Foreign portfolio investment has however been marketed totally differentlyand therein lies its success. The marketing is done by small, well-informedbroking and equity research firms. These are normally run by young peoplewho are excellent in their financial analysis and have their ears close tothe ground. They make research reports which are well-balanced unlikesarkari documents which tend to hide the known shortcoming of the economy.

Hence these reports carry much greater credibility. Further, unlike FDI soldthrough high profile seminars, FPI is sold in little cubby holes in Mumbaior Delhi or in some cases in London or Hong Kong. The transaction is putthrough without much fuss and the money reaches the country.

There is no reason for pessimism but we need to re-look at how we solicitFDI. It should be done by intermediaries and not by the Government. Alsoindustry groups are not the ideal vehicle for this because there could beconflict of interest as regards FDI between the domestic industry andforeign investors as the Asian Paints-ICI imbroglio showed. As per the laststatistics, tiny Thailand with its handful of post-contagion problems gotmore FDI last year than India. Maybe if we took a leaf out of the FPI bookand adopted the low-key approach in marketing and let the Government justcreate the infrastructure, we may do better in the coming millennium.

The author is a Delhi-based investment banker. His e-mail address ispnvijay@vsnl.com