FDI instead is seeking China. Annual inflows into the dragon are $45 billion, while only $3-4 bn trickles into India. True, the IFC suggested that this gap is much less than actually thought due to pervasive round-tripping in China while Indias numbers were underestimates. But revising Indias numbers in line with IMF standards has not delivered the expected results either. Cumulatively, FDI into China has amounted to a staggering $480 bn by the end of June 2003 by far the largest that has gone to any emerging economy. Over half of this has gone into manufacturing, where there are fewer restrictions on foreign ownership, according to work done by Nicholas Lardy of
the Institute for International Economics, based in Washington. The important question to raise is whether higher returns in India will persist when our tariff levels converge with those of China. Professor Lardy does not offer much hope in this regard as tariffs on imported manufactured goods in China will drop to 9 per cent in 2005. In sharp contrast, when our Uruguay Round commitments are fully implemented by then, our average tariffs on manufactured goods will still be 32 per cent. So, in all probability, we will continue to show higher returns on investments while FDI continue to torrentially flow into China as before.